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the chair of the economic council is here.

we have an extraordinary economic recovery board and its chairman is someone who knows more about financial markets and the economy in general and just about anybody in this country, paul volcker. thank you, paul. [applause] the of staying mayor of the city of new york, mr. michael bloomberg. -- the outstanding mayor of the city of new york, mr. michael bloomberg. and the assembly speaker is here as well, thank you. we have a host of members of congress, but there is one that i have to single out because he is going to be helping to shape the agenda going forward to make

sure that we have one of the strongest, most dynamic, and most innovative financial markets in the world for many years to come, and that is my good friend, barney frank. [applause] i also want to thank our hosts from the national park service here at federal hall and all the other outstanding public officials who are here. thanks for being here, thank you for your warm welcome. it is a privilege to be in historic federal hall. it was here more than two centuries ago that our first congress served in our first president was inaugurated. i just had a chance to glance at the bible upon which george washington took his oath. it was here in the early days of the republic that hamilton and jefferson debated how best to

administer a young economy and ensure that our nation awarded the talents of its people. two centuries later, we still grapple with these questions, questions made more acute in moments of crisis. it was one year ago today that we experienced just such a crisis as investors and pension holders watched with dread and this may, and after a series of emergency meetings often conducted in the dead of night, several of the world's oldest financial firms had fallen, but bankrupt, bought, or bailed out. lehman brothers, merrill lynch, aig, washington mutual, wachovia -- the week before this began, fannie mae and freddie mac had been taken over by the government and other large firms teetered on the brink of insolvency. credit markets froze as banks

refused not only to land of families and businesses but to one another. $5 trillion of american household wealth evaporated in the span of just three months. it was just one year ago. congress and the previous administration took difficult but necessary action in the days and months that followed. nonetheless, when this administration what for the door in january, the situation remained urgent. the markets have fallen sharply, credit was not flowing, and there was fear that the largest banks, those that remained standing, had too little capital and far too much exposure to risky loans. the consequences have spread far beyond the streets of lower manhattan. this was no longer just a financial crisis, but a full- blown economic crisis with home prices sinking and businesses struggling to access to affordable credit and the economy shedding an average of

100,000 jobs every single month. we could not separate was was happening in the corridors of our financial institutions from what was happening around the kitchen tables. a lack of access to affordable credit threatened the health of large firms and small businesses as well as all of those whose jobs depended on them. a weakened financial system weekend to broaden -- the broader economy which further weaken the financial system. the only way to address successfully any of these challenges was to address them together. this administration under the outstanding leadership of tim connor and christina romer and larry summers and others moved quickly on all fronts,

initializing of financial stability plan to read not -- to rescue the system from the crisis and restart lending for all of those affected by the crisis. by opening and examining the books of large financial firms, we helped restore the availability of two things that had been in short supply, capital and confidence. by taking aggressive and innovative steps in the credit markets, which spurred landing and not just to banks but to folks looking to buy homes and cars, take out student loans, or finance small-business is. our home ownership plan has held responsible homeowners refinance to stem the side -- the tide of lost home and lost home value, and the recovery plan is providing health and tax relief for working families, all the while spurring consumer spending. it is preventing layoffs of tens of thousands of teachers and police officers and other essential public servants, and

thousands of recovery projects are under way all across america, including right here in new york city, putting people to work building wind turbines and solar panels, renovating schools and hospitals, repair1a÷ our nation's roads and bridges. eight months later, the work of recovery continues. and though i will never be satisfied while people are out of work and our financial system is weak, we can be confident that the storms of the past few years are beginning to break. in fact, while there continues to be a need for government involvement to stabilize the financial system, that necessity is waning after months in which public dollars were flowing into our financial system. we're finally beginning to see money flow back to taxpayers. this does not mean that taxpayers will escape the worst financial crisis in decades entirely unscathed, but banks have paid more than $70 billion,

and in those cases where the government stake has been so completely, taxpayers have actually heard a 17% return on their investment. just a few months ago, many experts across the ideological spectrum thought that ensuring financial stability would require even more tax dollars. instead we have been able to eliminate a $250 billion reserve included in our budget because that fear has not been realized. while full recovery of the financial system will take time and work, the growing stability from these interventions means that we're beginning to return to normalcy. but here is what i want to emphasize today. normalcy cannot lead to complacency. unfortunately, there are some in the financial industry who are misreading this moment. instead of learning the lessons of lehman brothers and a crisis from which we are still

recovering, they are choosing to ignore those lessons. i'm convinced that they do so not just at their own peril but at our nation's. i want everyone here to hear my words. we will not go back to the days of reckless behavior and unchecked access that was at the heart of this crisis. we're too many were motivated only by the appetite for quick kills and bloated bonuses. those on wall street cannot presume taking risks without regard for consequences and expect that next time american taxpayers will be there to break their fall. and that is why we need strong rules of the road to guard against the kind of systemic risks that we have seen. and we have a responsibility to write and enforce these rules to protect consumers of financial products, to protect the taxpayers, and to protect our economy as a whole. yes, there must -- these rules

must be developed in a way that does not stifle innovation and enterprise. and i want to say very clearly here today, we want to work with the financial industry to achieve that end. but the old ways that led to this crisis cannot stand. and to the extent that so many have returned to them underscores the need for change and change now. history cannot be allowed to repeat itself. what we're calling for is for the financial industry to join us in a constructive effort to update their rules and regulatory structure, to meet the challenges of this new century. that is what my administration seeks to do. we sought ideas and input from industry leaders and policy experts, academics and consumer advocates, and the broader public. we work closely with leaders in the senate and house, including not only morning, but also senators chris dodd, richard

shelby and barney as are working with his counterparts, shall be back this shel -- shelby bachus. we are going have the biggest overhaul of the financial industry since the great depression. we ought to set clear rules of the road that promote transparency and accountability. that is how we will make certain that this will foster responsibility, not recklessness. that is why we make sure that markets will reward those who compete honestly and vigorously within the system in style -- instead of those who are trying to game the system. let me outline specifically what we're talking about. we're proposing new rules to protect consumers in a new consumer financial protection agency. [applause]

this crisis was not just the result of decisions made by dump mightiest financial firms, but also the result of decisions made by ordinary americans to open credit cards and take on mortgages. and while there were many who took out loans that they knew they cannot afford, there were millions of americans who sign contracts that did not fully understand, often by lenders who did not always tell the truth. this is in part because there is no single agency charged with making sure that that does not happen. that is what we intend to change. the consumer financial potential agency will have the power to make certain that consumers get information that is clear and concise and to prevent the worst kinds of abuses. consumers should not have to worry about on contracts designed to be unintelligible, hidden fees attached to their mortgage, and financial

penalties whether to a credit card or debit card that appear without warning on their statements. and responsible lenders, including community banks, doing the right thing should not have to worry about ruinous competition from unregulated competitors. now there are those who are suggesting that somehow this will restrict the choices available to consumers. nothing could be further from the truth. the lack of clear rules in the past meant we had the wrong kind of innovation. the firm they can make its products looked the best by doing the best job of hiding their real costs ended up getting the business. for example, we had teaser rates on credit cards and mortgage debt lured people in and then surprise them with big rate increases. by setting ground rules, we will increase the kind of competition that actually provides people better and greater choices as companies compete offer the best products, not the ones that are most complex for the most confusing.

second, we have got to close the loopholes that were a part of the crisis. where there were gaps in the rules, regulators lack the authority to take action. where there were overlaps, regulators often lacked accountability. these weaknesses in oversight engendered systematic and systemic abuses. under existing rules, some companies can actually shop for the regulator of their choice. others like hedge funds can operate outside the regulatory system altogether. we've seen the development of financial instruments like derivatives, credit default swaps, without anyone examining the risks or regulating all the players. and we've seen lender's profit by providing loans to borrowers who they knew would never repay. because the lender offload of the lung and the consequences to someone else.

-- offloaded the loan and the consequences to someone else. many agencies and regulators were responsible for oversight of an eventual financial firms and their subsidiaries, but no one was responsible for protecting the system as a whole. in other words, regulators were charged with seeing the trees but not the forest. even then, some firms proposed a systemic risk -- who posed as systemic risk or not regulated as strongly as other, taking on greater risk with less scrutiny. as a result, the failure of one firm threaten the viability of many others. we were facing one of the largest financial crises in history, and those responsible for oversight were caught off guard and without the authority to act. that is why we will create clear accountability and responsibility for regulating large financial firms which pose a systemic risk. we will hold the federal reserve

fully accountable for regulation of the largest, most interconnected firms. we will create an oversight council to bring together regulators from across markets to share information, to identify gaps in regulation, and other issues that do not fit into an organizational chart. we will also require these financial firms to meet stronger capital and liquidity requirements and deserve greater constraints on their risky behavior. that is one of the lessons of the past year. the only way to avoid a crisis of this magnitude is to ensure that large firms cannot take risks that threaten our entire financial system, and to make sure that they have the resources to weather even the worst of economic storms. even as we have proposed safeguards to make the failure of large and interconnected firms less likely, we have created proposed creating what is called resolution authority in the event that such a failure happens and poses a threat to the stability of the financial

system. this is going to put an end to the idea that some firms are too big to fail. for a market funds and, those who invest and land in that market must believe that their money is actually at risk. the system as a whole is not safe until it is safe from the failure of any individual institution. if a bank approaches insolvency, we have a process through the fdic to protect depositors and maintain confidence in the banking system. this process was created during the great depression when the fed you're one bank led to runs on other banks which threaten the banking system as a whole. that system works, but we do not have any kind of process in place to contain the failure of a lehman brothers or a ided or any of the largest and most interconnected financial firms in our country. that is why when this crisis began, crucial decisions about what happened to some of the world's biggest companies, companies that employ tens of

thousands of people and hold tens of trillions of dollars in assets, took place in the middle of the night. that is why we had to rely on taxpayer dollars. the only resolution a party we currently have that would prevent a financial meltdown involved tapping the federal reserve or the federal treasury. with so much at stake, we should not be forced to choose between allowing a company to fail into iraq and chaotic the solution that threatens the economy and innocent people, or alternatively forcing taxpayers to foot the bill. so our plan would put the cost of the firm's failure on goes to only its stock and loan it money. and the taxpayers, if they ever have to step in again to prevent a second great depression, the financial institution will have to pay the tax payers back every cent. finally, we need to close the gaps that exist not just within this country but among countries.

the united states is leading a coordinated response to promote recovery and restore prosperity on the world's fifth largest economies and the world's fastest-growing economies. this sunday -- the summer and london in april, leaders agreed to work together and up unprecedented way to spur global demand and address the underlying problems that caused such a deep lasting global recession. this work will continue next week in pittsburgh when i had a tree -- one attendee g-20, an effective florence -- an effective forum and one that i see taking an important role on in the future. essential to this effort is reforming what a broken in the global financial system. the system links economies in spreads both rewards and risks. we know that abuses in the financial markets anywhere can have an impact everywhere. just as gaps in domestic regulation lead to a race to the bottom, so do gaps in regulation

around the world. what we need instead is a global race to the top, including stronger capital standards, as i have called for today. as the united states is aggressively reforming our regulatory system, we will work to ensure that the rest of the world does the same. and this is something that secretary diner has already been actively meeting -- secretary geithnet has already been actively meeting with others around the world to discuss. made a mistake, this administration is committed to pursuing expanded trade and new trade agreements. it is absolutely essential to our economic future. each time that we have met at the g-20 and the g-eight, we have reaffirmed the need to fight against protectionism. but no trading system will work if we fail to enforce our trade agreements, those that have

already been signed. we in both existing agreements, we cannot do so to be provocative or invoke protectionism, but because protecting trade agreement is part and parcel of maintaining an open and free trading system. just as we have to live up to our responsibilities on trade, we have to live up to our ross -- our responsibilities on financial reform as well. i have urged leaders in congress to pass regulatory reform this year, and both congressman frank and senator dodd are leading this effort and have made it clear that that is what they intend to do. there will be those who defend the status quo. there always are. there will be those that argue we should do less or nothing at all. there will be those who engage in revisionist history or have selective memories and do not seem to recall what we just went through last year. but to them, i would say only

this -- do you really believe that the absence of sound regulation when year-ago was good for the financial system? do you believe the resulting decline, the wrenching hardship of families all across the country, was somehow good for our economy? was that good for the american people? i have always been a strong believer in the power of the free market. i believe that jobs are best created not by government but by businesses and entreprenuers willing to take the risk on a good idea. i believe that the role of the government is not to disparage wealth but to expand its reach, not to stifle markets but to provide the ground rules and a level playing field that helps to make the juice markets more vibrant, allowing us to tap the innovative potential of our people. we know that it is the dynamism of our people that has been the source of america's progress and prosperity.

so i promise you, i did not run for president to bail out banks are intervene in capital markets. but it is important to note that the very absence of common-sense regulations able to keep up with the fast-paced financial sector is what created the need for that extraordinary intervention, not just with our administration but the previous administration. the lack a sensible rules of the road, so often opposed by those who claim to speak for the free market, ironically lead to a rescue far more intrusive than anything any of us, democratic or republican, progressive or conservative, would have ever proposed or predicted. at the same time, we have to recognize that what is needed now goes beyond just the reforms that i have mentioned. what took place one year ago was not really up -- was not merely

a failure of regulation and just a failure of oversight or foresight, it was also a failure of responsibility. it was fundamentally of failure of responsibility that allowed washington to become a place where problems, including structural problems in our financial system, where ignored rather than solved. it was a failure of responsibility that led home fires to take reckless risks that they cannot afford to take. it was a collective failure of responsibility in washington, on wall street, and across america that led to the near collapse of our financial system one year ago. restoring a willingness to take responsibility, even when it is hard to do, is at the heart of what we must do. here on wall street, you have a responsibility. the reforms i have laid out will pass and these changes will become law, but one of the most

important things to make the system stronger than it was before is to rebuild trust stronger than before. and you do not have to wait for a new law to do that. you do not have to wait to use plain language in your dealings with consumers. you do not have to wait for legislation to put the 2009 bonuses of your senior executives of for a shareholder vote. you do not have to wait for a law to overhaul your pay system so that folks are rewarded for long-term reform -- performance instead of short-term gain. the fact is, many of the firms that are now returning to prosperity 08 debt to the american people. o a debt -- owe a debt to the american people. they were not the cause of this crisis but the american people through their government had to take extraordinary action to stabilize this industry. they shouldered the burden of

the bailout and they are still bearing the bailout -- the burden of the fallout in lost jobs and lost homes and lost opportunities. it is not a right nor responsible after you have recovered with the help of your government to shirk your obligations to the goal of a wider recovery, a more stable system, and a more broadly shared prosperity. i want to urge you to demonstrate that you take this obligation to heart, to put greater help toward families who need one modifications, those in need help. to help communities that would benefit from the financing you could provide or the community institutions you could support, to come up with creative approaches to improve financial

indication -- education and to bring banking to those who lived and worked entirely outside of the banking industry. and of course, to embrace serious financial reform. not resisted. -- not resist it. just as we are asking the private sector to think about a long term, i recognize that washington has to do so as well. when my administration came through the door, we not only faced a financial crisis and costly recession, we also found waiting a trillion dollar deficit. so, yes, we had to take extraordinary action in the wake of an extraordinary economic crisis, but i am absolutely committed to putting this nation on a sound and secure fiscal footing. that is why we're pushing to restore pay-as-you-go rules in congress, because i will not go along with the old washington ways we say it was ok to pass spending bills and tax cuts without a plan to pay for it. that is why we are cutting programs that do not work or are

out of date. that is why i have insisted that health insurance reform, as important as it is, not at a dime to the deficit now or in the future. there are those that would suggest that we must choose between markets unfettered by even the most modest of regulations and market weighed down by owners regulations that suppress the spirit of enterprise and innovation. if there is one lesson that we can learn from last year, it is that this is a false choice. common sense rules of the road do not hinder the market, they make the market stronger. indeed, they are essential to ensuring that our markets function fairly and freely. one year ago, we sought i start -- in stark relief how markets can spin out of control, how like a common-sense rules can lead to excess and abuse. how close we can come to the brink.

one year later, it is incumbent upon us to put into place those reforms that will prevent this kind of crisis from ever happening again. reflecting painful but important lessons that we have learned and that will help us move from a period of recklessness, irresponsibility, a period of crisis to one of responsibility and prosperity. that is what we must do and i am confident that is what we will do. thank you very much, everybody. [applause] thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009]

>> republican representative joe wilson from south carolina spoke on the house floor today for the first time since the president went before a joint session of congress last week. representative wilson's acclamation at a joint session has been widely reported in the media. >> mr. speaker, during the august recess i went to town halls and south carolina. 1500 in lexington, 1500 and you've heard, and during my 25 years of serving the public in the state senate and congress, i have not seen such passionate demands full of hatred. 95% support help the restaurant's reform but not a government takeover. i presented my concerns in a handout about the government-run health care plan, $1.60 trillion and cause, 100 million people losing their current

coverage, $18.8 billion in new taxes, many jobs lost according to a federation. rationing of care. i prevent -- present a better way introduced by the republican study group led by dr. tom price. it provides for affordability, keeping current coverage, tax incentives to purchase insurance, lower cost through competition, and bars government-funded abortion. and in conclusion, let us never forget september 11 and the global war on terrorism. >> for what purpose does the gentleman from texas arise? >> i've got some news here. reported by the hill, speaker nancy pelosi said the democrats should cease efforts to sanction representative joe wilson.

he goes on to quote her and says "it is time for us to talk about health care, not joe wilson." but democratic leaders, it goes on to say, looking into what formal action they may take against wilson and then say but policy dismiss that idea as well as a call for wilson to apologize on the floor. "i am on to health care reform, i am not going to discuss joe wilson." he will figure out what is a program for him to do. i am really confused. what do you call it when somebody says something that they are going to do, and then they do not do it? what does that statement? i yield back. >> thank you, mr. speaker. i come to the floor today to make the point that last wednesday night during a joint session, there was a very brief breach of decorum here by congressman joe wilson. someone who is a true consonance

southern gentleman, an officer and a gentleman, he immediately calls the white house and the white house immediately accepted joe wilson's apology and that must be the end of that. the gentleman conducted himself as a gentleman immediately and the aftermath without putting his finger to the political winds. he did the right thing. no one has a claim to any further redress if the president of the united states accepts an apology and he did. i stand with joe wilson. let's get on with the business of this house. the star running this country instead of making cheap political points which i expect will be coming sometime to the floor of this house tomorrow. >> the german yields back the balance of his time. -- the gentleman yield back the balance of his time. >> in a few moments, a hearing on how the state department chooses security contractors and oversees their activities. that will last about six hours and will be followed by the

health effects of cell phone use. on washington journal tomorrow morning, a look at trade between the u.s. and china with nicholas lardy from the peterson institute for international economics. john fund of the "wall street journal" will assess the obama administration, and we will talk with jonathan karp, editor of the late senator kennedy's memoirs. "washington journal" is live on c-span every day at 7:00 a.m. eastern. a couple of live events to tell you about tomorrow morning. house democrats oppose the health care meeting that includes leaders of the american medical association, the american nurses association, and the aarp. that is on c-span3 at 9:00 p.m. eastern. hear on c-span, federal reserve chairman ben bernanke at a

broking institution for more on the state of the financial markets. that is at 10:00 a.m. eastern. the independent federal commission on wartime contract and held a hearing monday on the state department's direction and oversight of the security contractor for the u.s. embassy in kabul, afghanistan. the securities firm former group recently fired eight guards after allegations of lewd behavior and sexual misconduct. the commission hears from state department and security company officials. this is about six hours. dollars i'm christopher shays, co-chairman of the commission on wartime -- wartime contracts in iraq and afghanistan. thank you for attending this hearing on state department oversight and contractor employee conduct. before we hear witness testimony, i will make a note in -- in opening statement on

behalf of the co-chairman, my fellow commissioners, and myself. one commissioner could not be with us today. the other commissioners grant green, robert henke, dov zakheim. the catalyst are the widely heard allegations and photographs of ms. condi is among the private security contractors that protect u.s. embassy in kabul, afghanistan. we do not intend to describe those reports and photographs in any detail. our primary interest is not in the sordid details of the drunken partying and groping toward the intimidation and abuse of foreign national members to the guards. that specific series of events certainly got our attention, but what motivates this hearing is our interest in the disturbing

questions these incidents raise about the subject of wartime contract in, which congress has mandated to us to study. specifically, though in the government or in this case the state department is watching the contractors? today we will explore the symptoms of a broader seissues f contractor performance that may be revealed as we oppose issue -- questions like these -- how did the breach of the code of conduct and its contractual obligations go unobserved and unreported by senior management for months? why did armor group's supervisors delay reporting of news of misconduct and intimidate people in my reported? with reports of this surfing -- surfacing as early as december 2008, and with two contracting officers staffed full-time to the cobble contract, how did the

state department to take no signs of trouble until it received from armor group leaders in washington, not couple, in late august to thousand nine? -- not kabul, in late august 2009? as the state department issued a new tour notice or review the security contract for possible determine -- termination? does the lowest cost acceptable standard need to be replaced by a best value standard? indeed in more fundamental, in a wartime environment, providing security for u.s. embassies and appropriate function to be delegated to contractors? we will have other questions and questions and testimony and colloquies will develop. that will help us develop -- determine whether it the

standards and practices for managing contractors and responding to incidence of ann coulter -- of conduct are adequate. american foreign-policy and lives depend and no small part on the behavior of employees who make up half of the contingency work force in iraq and afghanistan, and maintaining a reputation for honorable and decent treatment of foreign nationals as well as our own countrymen is a key asset in the struggle against terrorism. it is just basic common sense, gross misconduct by u.s. contractors the values that asset. it is unfair, insulting, and dangers to the military, the state department, and non- governmental employees to have america's image sullied and traveled by outrages and revolting behavior of contractor

employees. that concern is even more stallions in countries like afghanistan that have street views of sex -- even more salient in countries like afghanistan that have strict use of sexual matters. many are outraged by the process of being tarred by the brush of misconduct by a few irresponsible workers. the incidents reported near the kabul embassy undermine the american efforts to build a stable, peaceful, and democratic afghanistan. they provide free recruiting material to the taliban. armor group acknowledges the problem but it cannot say that they were unaware of their obligations. their contract with the state department exclusively describes not only conduct requirements but also the reason for them. i was " just one of those

provisions. each contract employee is expected to adhere to standards of conduct that reflect credit on themselves, their employees, and the united states government. the disparity between the contract language and events on the brown speaks for itself. unfortunately, the misconduct appears to have been concentrated -- fortunately, the misconduct appears to have been concentrated in a rogue band of armor group employees, some of whom have allegedly been fired along with their supervisors and senior leaders. others have been allowed to resign. we have seen no evidence that state department employees participated in the incidence or had any knowledge of them until recently. their questions about all levels of vigilance and vigilance that our group and state were exercising. the scope and duration of this conflict are both greater than they first same. initially we thought a list of

disturbing episode is comprised the partisan june 15 and august 1 and august 10. we insist discovered that other incidents occurred during december 20008 and that cafeteria parties became a recurring event during off-duty hours. tough coming young guards cannot be expected to spend their leisure hours diagraming sentences while studying local tea ceremonies. but we can insist that their measures and the government's contract managers pay close attention to employee conduct one important -- on an important mission in a sensitive region. we need a great deal of improvement on those points. improving contract employment -- behavior is essential and it is not easily done under are currently -- our current policy choices.

within 2 minute 50,000 contract employees are working in iraq and afghanistan, and more than 1000 have died in allied of duty. they bring special skills to bear, free up soldiers for combat missions, and provided by all contingency four indices. i am trying to understand how we can improve the the sick -- the system and make it work. let me talk briefly about why we invited them to testify. they're the largest state department contract in iraq and afghanistan with the extent of its experience in narcotics and law enforcement work. like any large organization, including the federal government and the military, they have been obliged to deal with employee misconduct and belated legal issues. the military, they've been obliged to deal with employees' my conduct and related legal issues. we are interested in the standards and practices contractors use and in the speed and completeness of their

reporting to the client. the united states government. we will explore their experiences and practices including expectations recording alcohol and other substances. just a few days ago they notified him about another tragic situation in afghanistan. we will explore this incident instead. we will swear in all witnesses and any companying staff who may need to provide information for the record during these proceedings. our witness is p honorable patrick f. kennedy under secretary state for management. two state department officials -- three state department officials accompanies him to subject matter expert.

ambassador eric boswell, assistant secretary of state for diplomatic security and mr. william glenn. principle secretary for international narcotics enforcement. they will provide none government viewpoints. executive director of the project on government oversight. he comes to us from great britain. >> mr. doug brooke, president of the international peace operations association. and vice president of homeland security and international security services.

our witnesses have been asked to summarize their testimony in five to seven minutes in order to ensure adequate time for a good flow of questions and answers. the full text of any written statement they submit will be entered into the hearing record. we ask to submit any responses to questions for the record and additional information they may take to offer in the hearing. i want to state for the record that the state department couldn't have been more cooperative, been extremely cooperative. they've allowed us to speak to a number of staff in the united states and in afghanistan and so i just want to thank the four of

you for the cooperation we've received from all of you and from your leaders as well. raising your right hand, do you solemnly swear or affirm that the testimony you will give to this commission is the truth, the whole truth and nothing but. mr. kennedy, my understanding is you will be providing a statement you have graciously invited others to join if there's a specific question. . you're the leader of the group. thank you for the opportunity to appear before the commission today. i appreciate the commission's ongoing review.

the secretary of state shares your deep concern about the outrageous conduct by a small group of american employees in kabul. we're very concerned about groups reporting their action to the state department. the incidents of misconduct are repugnant and demanded swift, n inappropriate action. i take responsibility for having failed to prevent them and for not having uncovered them earlier. and a country where the success of u.s. objective depends on the cull curl sensitivity of all mission personnel, including employees under contract. when these allegations came to light, the secretary directed

their -- directive actions be taken immediately along with a thorough examination of performance, management and oversight of the contract. the secretary charged me personally to take every necessary step to ensure that all personnel, including contractors, meet the highest standards for individual behavior and conduct. and the inspector's general office. today 165 army group personnel have been interviewed. the regional security officer is interviewing third country national guard supervisors as well as all local national staff. we have taken the following actions. eight army group guards have been removed from the state department contract and four more have resigned. the entire management team in kabul is being replaced. two were removed from the contract. two have resigned.

three managers departed afghanistan. the final manager will depart on september 16th after a handover to his replacement. now stationed at camp sullivan. our par mont responsibility was and is to ensure the continued provision of security by well disciplined, well supervised and professional guard force. our top prior to provide the most secure possible for the conduct of our foreign policy, especially in challenging operational environments such as in afghanistan. as the state department employs in new and expedition nar ways, security is critical. we are carving out a new road as we operate for the first time in

zones of active conflict. to ensure the security is not breached. the state department has not lost and will not lose sight of the fact that the security personnel in afghanistan and elsewhere is our first priority. unlike those on the other 263 posts around the world. we are writing a new set of rules and policies as we go. in most cases where contractors provide static guard services at embassies throughout the world, personnel are almost exclusively local hires with homes and families to which they return each night. in afghanistan and iraq, third country nationals to staff the local guard force and contractor provide housing and meals at a camp. in both countries the situations have called for rapid deployment

of security contractors for an uncertain duration. for obvious reasons our contractors have face d it's no only difficult to find contractors to meet the requirement, but it brings with it unique logistical challenges. the services of iraq and afghanistan. our initial operations in both countries benefitted enormously for the support provided by the u.s. military. in 2004 the department of defense withdrew personnel and the state department had to take responsibility for ensuring provision of these services. nearly 2,500 contractors are serving as guards in iraq and afghanistan. they are engaged solely to protect our personnel on the ground. they do not participate in combat activities or law enforcement. >> we're going to allow you as much time as you need. don't feel like you have to look

at the clock. >> thank you, sir. >> in afghanistan a major international security firm was contracted to provide essential on sight control of the housing camp and the conduct of our static guards who spend their offduty hours there. however, these recent events make evident the need for stronger state department oversight, including now when contractors are justify an duty. unless the oversight can be provided by contractors, closer management by government personnel will be necessary. we have always had in place a rigorous regime of oversight for security operations by contractor personnel while they are on duty. allegations of contract and misconduct are investigated and if substantiated, appropriate action is taken. over the life of this contract when concerns were raised about the conduct of specific we aske individuals to be removed from the contract. when we identified deficiencies, we followed up. and when the most recent

allegations came to our attenti attention, the department demanded immediate action about it contractor and the individuals were involved were removed from the contract. the many dedicated members of the kabul embassy security force have provided essential protection of the mission compound and add joining facilities. they have maintained our security in this dangerous environment. as the department of state reduced its securities support, the use of a contract guard first was the only way to meet the new requirements quickly. globally, there are only some 1,700 diplomatic security special agents in the department posted domestically and overseas. this group of dedicated employees safeguards 265 diplomatic and counselor posts, protect senior u.s. and foreign dignitaries, carries out critical investigations by our national security by insuring that u.s. task force and visas do not fall into the hands of criminals and those that would do us even greater harm.

and performed a myriad of other essential security responsibilities. to fully staff both afghanistan and iraq requires 2,500 static guards and triple that number when factoring in rotations. we cannot hire and train sufficient numbers of additional state department personnel to meet the sharply increased demands in the short time frame. the unpredictable duration of missions at this level of intensity present a real challenge in determining the appropriate level of the state department's diplomatic security service. it is difficult to scale up the size of our security force and is equally challenging to ratchet back one of the primary reasons that contractors have been used to fill gaps that develop quickly with an unclear but limited duration. the cost of using contractors also is often higher than would be to hire and manage an internal workforce. we need to explore alternative mechanisms to meet fluctuating

levels of need for diplomatic security in the future. these events bring into focus a broader issue regarding the extensive dependence of foreign affairs community on the use of contractors. secretary clinton directed both state and usaid to develop options for infective and more efficient ways of advancing our foreign policy objectives. while we continue our analysis for the best way forward, we look forward to discussing and considering the commission's recommendations. in the interim, the state department must use the extensive experience in securing services to protect our overseas diplomats and facilities and to be able to advance our national security interests through our on going diplomatic activity in this ever challenging world. we must also redouble or efforts to insure that contractors are performing in accord with both our policies and our values at all times. i would like to review in some detail the history of the department's contracting for

static guards in kabul. the department first contracted with pae lewis berger interim measure ahead of full and open competition n july of 2005, an award was made to mbn. they made the transition phase but it was unable to reach a point where it could begin contract performance and ultimately terminated. the pae contract remained in place during that time. on march 12th, 2007, a contract award was made to armor group north america after full and open competition involving a number of countries. this contract has required extensive oversight and management since atward we issued seven deficiency notices, addressing 25 deficiencies, one pure notice and one show cause i want to outline the major steps in honoring this country.

in june 2007, o the department pursued allegations with armor grip and requested immediate action plans. our group addressed allegation. july 19, 2007, a local card contract allows for a 90 day transition period to ensure contractors have adequate time to stand up to full performance. the department issued a letter of warning to armor group about the serious concerns with transition progress and our expectation of contract compliance. have a real 30 of, final deficiency letter. a second letter of reprimand on the inability to reduce previously identified deficiencies as well as newly identified deficiencies. may 2008, the chief of acquired

armor group and assigned to it to wackenhut security. with extensive experience in providing standard card service said other u.s. guard embassies worldwide, likens the bridget wackenhut committed to contribute debt contract, and or to consider alternate vendors when there had been only one other qualified bidder for this contract and on the prior round of bidding a previous vendor was elected but failed to perform. on balance, the department decided to exercise its option to extend a contract for one year. . to extend the contract for one year. september #2008, the state department sent armor group a third letter of reprimand for failure to correct staffing

shortages despite the recommendations made upon acquisition. the department decided to take the first step forward towards contract which was determination. over the next five months, the department conducted an extensive dialogue with armor group and armor group sufficiently demonstrated its ability to resolve the remaining deficiencies contract staffing shortages. on january 24, 2009, the diplomatic security judge armor group to be compliant with the contracts staffing requirements. despite the administration's deficiencies with armor group, the department did not observe any breeches of the security of the mission. so the constant oversight of the regional security office and the contracting officers, diplomatic security personnel on the ground in kabul felt the administrative contract deficiencies did not jeopardize the security and safety of the personnel assigned to our mission. static security as well as all

our overseas missions is based upon multiple layers of staffing to insure appropriate security coverage and no single point of failure. in february 2008, unmanned hours reached a peak of 1440 hours out of a total of 85,000 hours which is 1.7%. as an example, a guard post to the embassy would have a contract ual requirement for six static guards tults with a roaming guard available to take the place of an individual on break. on several occasions, during oversight reviews of the contractor, the regional security officer observed six guard post covered by only five guards. the absence of one individual for an hour would represent an unmanned hour. but would not raise security concerns given the redundant coverage in place. thus while the staffing shortage for armor group received deficiency notices and represented a failure to meet contract specifications, they

did not represent a security risk. and based upon our reviews to date, the safety and security of our diplomats has not been compromised and security at the embassy was not threatened. as with all security contracts, there is constant communication with and collaborative efforts by the contracting officer and diplomatic security in washington and the regional security officers on the ground in kabul. the armor group contract weekly meetings and at times daily meetings are held on contract performance, the contracting offense representative and diplomatic security federal agents who sits in washington and works daily with the two contracting officer representatives in kabul who are also both diplomatic security federal agents. as the commission recognizes from its extensive work, the u.s. government is constantly confronting new challenges as we manage in a threat laiden environment. as we look ahead, we incorporate lessons learned to make sure thattish rues not repeated. while we continue to undertake

further investigation into these matters, several points are clear. the safety and security of our personnel is and must always be our top priority. we must provide the most secure environment possible for our employees to conduct our foreign policy. as representatives of the united states government, it is our obligation to adhere to the highest standards individually. this is a single standard for all employees. u.s. government and contractor alike. we must insure that contract oversight is direct and all reports of problems are fully investigated. we must have in place a rigorous regime of oversight for security operations. we must find the right balance between u.s. government employees and contractors in environments like afghanistan and iraq or pursue new alternatives for the provision of security. other actions will depend upon our on going investigation and

as necessary and appropriate we will re-evaluate the continuation of this contract. once the investigation is complete, we look forward to discussing the findings with the commission. thank you for providing me with this opportunity to appear before you today. >> thank you, senator kennedy. we'll be going to my co-chair to ask for a set of questions. then to commissioner durbin, green, and then i'll go last. commissioners will do a seven-minute first round and three the second. and i think we're all set. >> i'd like to make an observation and read a note from secretary clinton's response to senator mccastle and what i'd read and compliments relates very closely to your statement,

secretary kennedy. she wrote a personal note on the bottom of the letter to secretary -- or to senator mccastle. she said i hope to discuss the problems we have with you because of the excessive outsourcing of too many critical state and aid functions with you at your convenience. that's a powerful statement. the letter is on target in terms of generating a quick response and identifying accountability which i personally we have a commission would support. you talk in your testimony about closer management of contractors and a mandate to explore alternative issues that was made by secretary clinton. in your statement you also talked about trying to determine the right balance in the new -- in any -- and whether you need to go to new alternatives.

that's just a statement on my part that the commission, as you have outlined, look forward to following those actions throughout the course of the next few months. because it's really critical. first area i'd like to explore with you is we have taken multiple trips to afghanistan. i've had the opportunity to go in november of last year, april of this year, august of this year. and on each trip we stop by state department and we have gone out to where some of the state department accomplishes some of its work and the like. and on each trip we've been briefed by the contracting officer representatives and the individuals responsible to work with them. those are the individuals that are the contracting officers eyes on the ground. as outlined in commissioner

shea's opening statement, that's been going on -- the behavior part of it, has been going on, it appears, since december's holiday party, at least. the contracting issues have been going on for 27 months in terms of putting the company on record, both the company and the original company contractor and then the acquiring organization. it's troubling. i ask for your comments whether the contracting problems and misconduct hasn't been disclosed or revealed. when we met a few days ago last week, we were told about daily trips into the compound. this morning, it was clarified that well maybe it's weekly

trips. in light of the problems that kurd and the responsibility that resides with contracting officer representatives, we've been told shortages. and we asked for more. in fact, we were told they asked for seven and promised four. i appreciate your comments relative to whether you think your contracting officers on the ground, the eyes and ears, are doing the job as anticipated by state department and if not, why not? >> thank you, sir. there is no question, mr. chairman, that we should have done more. and i made no grope for that. that is what i told the secretary. and that is what i said in my statement. we had focused on insuring the contractor was delivering the contracted services during the duty hours, making sure that the posts that were specified in the

contract or duty were covered. and that is why you see as we have identified in both my statement and in a lot of other material that we were pursuing regularly with the contractor every deficiency that they had in making them correct them for their performance. we simply made a mistake. we assumed that the contractor was going to be managing its conduct at the guard camp in accordance with the standards in the contract as your fellow co-chair outlined. on a regular basis, they did visit the guard camps. the other representatives of diplomatic security were at the guard camp on a regular basis.

during the performances by the on duty personnel, the regional security officers, both the contracting officers and other regional security pirn knell were talking on a daily basis to the supervisors, to the guards while they were on duty and constantly engaging them in a dialogue. at no time over the course of this period, to the best of our knowledge, did anyone say to us at any point there is this misconduct going. >> thank you. >> clearly proves that what we should have been doing is having more presence, a permanent presence on the compound and that is why having learned about these despicable instances, that's why we have seven by 24 coverage now on the compound. >> okay, thank you, secretary kennedy. i appreciate. that i'm not going to ask you to respond to it.

conspiracy is a bit of astrong word. i'll make the observation that at no time this was disclosed which i accept that statement, i heard that. commissioner sheas joud lined what we learned, then conspiracy is a strong word. but someone in armor group must have worked real hard so that your state employees didn't know about this. let me ask you a question, given the testimony and the discussion and the results of your interviews, if you were to find out today or in the near temperature and we've been told that your more senior managers may have stopped by the party on june 15th but that then they left and they apparently didn't know the severity because the parties continued. if you were to find out that

there was instead a discussion by the most senior managers in armor group that on june 15th at the party that maybe this had gone over the edge and was inappropriate and weather through collegial cooperation or just accepting someone's expressed in the past that it was stated early on, you have to understand boys will be boys. whatever it was, if you found out that did occur and they made a decision then, no, we'll go ahead and let this party go on, and then they left or at least one of them left and the other one stuck around, but that changed your outlook entirely or how might that chapg your outlook in terms of the fact outlook in terms of the fact that maybe if they discussion and they had shut it do

>> it is absolutely clear to me that there was a failure on the part of the farmer group of north america representatives on site. when this came to attention, we went to headquarters and asked all the supervisors to be relieved. i have seen the pictures. you have seen the pictures. it is a no-brainer. that conduct is appalling and should have been stopped immediately. the failure of the management on site to do what they should have done to it here to the standards of the contract, cause us to ask for their removal which has been accomplished. if it turns out that there was, as you use the word, and i realize you also put it in quotes, a conspiracy, if this

turns out to be larger than that, i think i stand by the state in my testimony which that this -- we are waiting for the results of the investigation. my testimony. we're waiting for the results of the investigation and then we'll decide whether it is proper to continue with this contract. >> thank you, secretary kennedy. that really is the ultimate decision which is should the united states government continue to contract. >> may i clarify? >> please do. >> ambassador kennedy, did you ask them to remove the managers or did you require it? we asked whackenhut to remove

the managers. if they did not remove the managers, we would have required it. >> and was that at their first suggestion or -- >> our suggestion. our suggestion. our strong suggestion. >> okay. commissioner shea? >> thank you. we're going to the commissioner. >> thank you. secretary kennedy, as you say, everyone has seen these photographs this june 15 incident are outraged by it. truly shocks the conscious. the same is true for the other behaviors that we're aware of in august, august 1 and august 10th. no one would disagree with that. but i have to tell you, i'm also very much troubled by the state department's repeated characterization because of this whole litany of the problems over the course of two years with this contract. both in secretary clinton's response to senator mccastle which the co-chairman referenced a second ago and the testimony

before mr. mccastle's testimony in june and the colloquy he had with the senators. in your own statement today, you -- the state department draws a distinction, attempts to draw a distinction between contract compliance and the securities of the industry in your statement despite the administrative deficiencies the department did not observe any breeches of the security of the mission. your own letters, the state department's own letters, there is a june '07 letter. the purpose of the letter is to advise you that i consider the contract deficiencies to endanger the contract to such a degree that the security of the embassy is in jeopardy. there is an august 28 letter upon review of the most recent corrective action plan that government has serious concerns regarding armor group's ability to respond in the aftermath of a mass casualty instant or mass

resignation or loss of manpower due to illness, et cetera. this june 15 incident, the office incident, all of these i would argue have the potential so to enflame afghan opinion in general, and in particular the opinion of afghan personnel on the embassy as to endanger the lives of our personnel, in march before that, we had 18 guards apparently who were off duty of their posts, some for as long as three hours. and then we learned in may of 2009, there was this operation snack pack incident when some guards on their own initiative went into kabul dressed as afghans and pretended to undertake a reconnaissance mission. the potential for loss of life is huge there. and for a while the embassy was "nightline"ed as a result of that. all of these instances, i would argue, are not administrative deficiencies. they directly, in your own correspondence in the case said that this behavior over the

course of time jeopardizes security of the embassy. how can you justify this distinction? >> we're not attempting to justify anything. we're attempting to describe a set of facts on the ground. i'm not offering justification for armor group's performance. we're saying and drawing a distinction between the off duty conduct of a certain number of armor group personnel which was reprehensible and totally inappropriate to say the least and their on duty performance in protecting it the u.s. embassy facility in there. there were administrative deficiencies. we were the ones calling these administrative deficiencies to the attention of armor group by our constant monitoring of their

performance on a daily basis and reporting back to washington. so we're just -- the distinctions between on duty and off duty, the contracting language you quoted there is certainly, yes, we said that. we were attempting to convey to armor group our grave concern about their performance of their on duty responsibilities. but all the evidence to date now as my colleague if he would like to make any further comments from diplomatic security, indicate that there was never a breech of embassy security posture. and if i might -- there have been two major bombings -- vehicle born bombings, one just up the street from the american embassy compound and one just up the street from camp sullivan where the reactions and the

discipline and the process engaged in by the armor group personnel was exemplary. >> explain to me then why this language was used in these letters in 2007 and 2008. if the course of conduct by armor group, even in those early years, did not endanger security of the mission, why was that language used? >> in an attempt to get armor group's attention. we wanted to shock armor group and tell them that they were endangering their continued contra contractual relationship with the state department if they did not fail to correct the deficiencies. >> it didn't say. that it said it endangered the security of the mission. let's pursue that further. you could really get armor group's attention by terminating the contract. failing to exercise the options. you didn't do that. you know, there is this old adage, if you want to reward something, you -- you know,

give -- you do more of it. if you want to penalize something, you know, do you less of it. the fact of the matter is you continued this contract. and why is it under the circumstance that's we had for these two years? >> because, commissioner, operating in a zone of conflict is something new and different for the united states government civilian side. we have put into -- we put into place an open competition for a contractor, mbm was the winner of that. and they failed to perform. and so we terminated them. we then went out with another round of bids for full and open competition. we had eight bidders on that contract. only two of which were

technically qualified. and armor group was selected. the decision was made, i believe, and i'll ask mr. mosher to comment further on it, that armor group was in the process of correcting these deficiencies. and you compare that to having no contract in place. i am given the difficulties of operating as i outlined and the lack of response of bidders previously, we saw a ramping up, a movement towards by armor group to full and complete compliance with every single one of the contract specifications. something we never saw with the previous contract worthy mbm. they never made any progress. we saw extensive progress being made by armor group and rightly extensive deficiencies. >> my time is limited. i want to give mr. mosher an

opportunity to respond. one follow up question to that. both of you can answer. i'll reserve the rest of my questions for the second round. given what you know now, is it the intention of the state department to terminate this contract? what do you have to do, essentially, in order to get the state department to terminate a contract like this under these circumstances? >> mr. kennedy already pointed out we do want to look at the results of the investigation. we try not to take arbitrary action in any case and we do want to go through that. and i will say this to you, a public hearing is not really necessarily the place that we need to have a discussion about the future contract ual actions. members of the commissioners that met with me last week, we're actively discussing our alternatives in this situation. and it is not with a great deal of seriousness that we approach it. and, in fact, one of my contracts, the head contracting officer that has this contract met with armor group, mr.

brinkly on friday night. and we are trying to engage with him constantly in our -- and to try to lay the basis for our decision making process of what we're going to do, what we're going to do in the near future. >> thank you. thank you. >> secretary kennedy -- >> mr. green, i'm sorry. >> it's more fun to be up here, pat. if you would, in your opening statement you spoke very briefly about the uniqueness of kabul and baghdad and the way they're supported logistically. and i accept that fact. certainly in a conflict area. there are a number of other posts, not a lot, but a number of other post that's also use third country nationals in the guard force. would you just briefly explain

how they are supported logistically? thank you very much, xmi commissioner. 260 conflict posts around the world, only kabul and baghdad have compounds where the individuals -- individuals live. about 260 other ones, the individuals are local nationals and go home every night. and a couple of them usually in the gulf, they are third country nationals but they live on their own. they do not live -- they do not live in major compounds like we have in afghanistan and iraq. and also, they are not in effect forced to remain on those

compounds by the security situation there. the life amenities, the ability to get out and go shopping, to go for a walk, to go to the beach, to do all those other things that one would normal -- they describe as a course of activity that a human being does to get a break from their work are available in those other locations even when their third country nationals and are not available in afghanistan and iraq. >> thank you. who has the contract in baghdad? >> triple canopy has the contract for the static guards. >> has there -- have there been any similar sorts of incidents with triple canopy? >> no, sir, we are not aware of any -- of any incidents of this nature. >> how would you account for that difference between the two which are operating in similar environments? >> i think it is probably --

there's a major and a minor reason. the major reason is that the guard camp that triple canopy uses in baghdad is literally adjacent to the united states embassy. it is on part of the larger embassy compound. and even when the embassy was in the palace, it was a very, very short distance away. and there was much more movement back and forth. so i think there was per force a presence all always around that compound. the local guard compound in baghdad because of geography. and that's something that we have taken very much to heart. and that is why we have changed our policy and now have an assistant rij rx and to the procedural issue? >> you have by four -- you have,

by far, more experience than any other senior official in the department. including, the oversight of diplomatic security and the acquisition activities of the department. as you know, there are always good contractors and contractors that are so good. have you ever, in your long experience, seen another contractor who has failed in so many areas, received so many chances to improve, and i am talking not just about the technical and administrative deficiencies that we have all talked about in about, but the ethical and behavioral aspects

of it. i stretched the ethics because in my mind, that is as important if not more important fax them some of the other issues such as where learn of the equipment is satisfactory for the guards are temporarily using government rushed weapons. temporarily using government furnished weapons. i think it is a reflection on the company's culture at all levels, particularly the management of the company, and it's a reflection in the end on our country at a very critical time when we're attempting to win the hearts and minds of the afghan people. so i'd like your reflection,

your comments on that. >> commissioner, there is no question that this does reflect very adversely on the management of the armor group north america. there is no doubt about that. you asked about drawing a comparison. and i really wish i could draw a clear comparison. the problem that i have is uniqueness scale context. the two contracts that we have, one in kabul, one in baghdad, for local guard services does -- has no other comparison in the world. we're engaged in a new era of protecting american embassies and competent decision airy ways in zones of conflict. and we are learning as we're going and i take responsibility for the foible that's take place along the way. if i might, armor group north

america has operated in both iraq and afghanistan. it has managed guard contracts in both locations. it managed the guard contract at the british embassy in kabul. whackenhut north america is a partner with the state department in managing 51 local guard contracts at other locations in the world. which is why, maybe this is also a partial answer to commissioner irwin's question -- we felt that the expertise that whackenhut is now part of the larger group brought to this and when armor group -- i'm sorry, when they assigned responsibility for the oversight recently to whackenhut, wsi, because of their expensive experience in 51 locations, even armor group before, i believe, had eight or ten contracts with the state department and other locations. we thought that they would have

the discipline and the process to make this a successful contract and as we watched the increasing delivery of armor group, we thought that they were on the right track. we were clearly wrong in terms of the context. >> thank you. i want to go to this issue of terminating contracts. because that issue isn't new. what you told us is we're going to wait for the results of the investigation and then decide whether to continue the contract. that was the exact same situation with black water. the ig said that you were waiting for the outcome of that investigation which ended up in a criminal indictment in order to determine whether to continue that contract. and that contract was a situation where in iraq you lost

the hearts and minds of iraqi people with respect to black water because ultimately -- it was overwhelming that the iraqi people disliked black water. you contracted to contract with blackwater. it was only until the iraqi government said that we're kicking black water out of iraq that you actually took action -- you're shaking your head. but that's my understanding. and you can correct me in a minute. but when you didn't terminate your contract with blackwater after the probdz lems in iraq t, helped to send a message to other contractors that you can do a lot and not have your contract terminated by blackwater. i have the state departments

wanting documents relevant to that decision which i thought would be a fairly complex decision. are we accomplishing the major mission of winning the hearts and minds of the people versus the security? and there was only one document which just said reup the contract with blackwater. there was no analysis of the cost and benefits of doing so with respect to iraq. and i raise this because it's in the same context. you're giving us the exact same response as the black water situation that you're going to wait the outcomest investigation. i don't know given the history that there's any confidence that you would actually take action regardless of the outcome of the investigation. >> first of all, commissioner, we did -- the blackwater contract hadn't had additional option years that we did not -- we did not engage. >> no, there was an option year after the square. >> but we didn't -- yes. but there were additional option

years that we did not engage. >> well, because you were kicked out of it. they were kicked out of iraq. by the iraqi government. >> one of the -- one of the terms of the contract was that a company must have a license to do business. >> right. >> and that -- that then defaulted, so to speak. >> it wasn't your decision. it was this they didn't have a license to operate in iraq. they are contracting. >> but that was our decision because we put that specification in the contract that they would be permitted to operate by the host government. >> go on. >> the question about your -- we take very seriously, i mean, we are there in iraq. we're there in afghanistan. we're there to deliver and support the policy goals of the united states.

and the swaituation in kabul ar absolutely appalling. and as i've said in my testimony, those incidents are under review. we are -- we have the inspector general, a diplomatic security service looking at them. and we will make a decision on what we need to do about this matter. >> well, i hope you do it in a thoughtful way where you weigh the costs and benefits and have some documentation on this. there was no documentation, absolutely none, with the decision on the black water contract to reup it following the square. and i can tell you that. it was a surprise to me. have you -- is it common, what commissioner green said, to have a contract with seven deficiencies, one showed cause and one pure notice?

is that fairly you are teen contract or is that an exceptional contract? >> there are only two contracts for guard services of this kind in the entire world. and that's the -- >> i just mean in all of your contracting? >> ma'am, we have had -- we have had pure notices issued. there are a variety of contracts we had pure notices issued on construction contracts. and so having deficiencies in pure notices of -- in some volume, absolutely. but in comparison to this contract, as i said, there are these two specific new unique contracts that we are working our way through. and if the performance at armor group excluding the recent events that are now under review, if the performance at armor group had been on the same trajectory as that of the

previous contract awardee, mbm, we would have terminated it. but, with the armor group resolving the deficiencies, we saw that as a positive step. would we like it to have been faster? absolutely. on the other hand, we were comparing it to the degree of difficulty that we had experienced in afghanistan in putting together a full -- a full-fledged local guard contract in that location under those circumstances and made the decision that the trajectory of the contracts performance was cost effective. >> i have a couple quick questions. have you interviewed -- you interviewed 165 armor groups employees, i think you said, something like that. >> yes. >> have you interviewed the regional security officer who was on duty for the december

party and the june 15th party? >> there was no -- we would -- >> who was in charge there? the regional security officer who was in charge of the camp sullivan from the time of december 2008 to july 2009. we know a new person has come onboard as of july 1st. but i'm asking with respect to this incident, have you interviewed the former rso? >> yes. >> okay. and was he completely unaware of the december party and the june 15th party? >> that's my understanding, yes. >> okay. my time's up. >> we'll go with commissioner ranke. >> i have four brief questions before i get into what i really want to talk about. there is so much here to get at. mr. kennedy, at the point of award for this contract, march of '07 time frame, roughly, how many submissions did he receive? >> we -- there were eight bids.

>> eight bids. >> of which only two -- >> eight bids. did whackenhut submit? >> yes. >> was whackenhut judged to be technically acceptable? let me finish, please. was whackenhut judged to be technically acceptable? >> no. >> what was whackenhut's price? >> i don't believe -- we'll have to get that for you. >> mr. mosher, do you have it? >> was it $272 million plus or minus? >> that sounds familiar. >> okay. good. that's good. what -- so their price, technically unacceptable but their price was $272 million. okay. what was the bid -- the contract you signed? >> $189 million. >> $189 million. okay. mr. kennedy, your own ig that state ig did an inspection of

embassy kabul in january '06. i'm sure you're now familiar with it. i'm sure you were then. quoting from page 2 of that report, "afghanistan presents a dangerous and stressful operating environment, stringent security requirements constrain work schedules, consume large amounts of human and other resources, restrict mobility and directly affect post morale. the conductst embassy's protective detail" -- we're not talking about protective detail here, we're talking about the embassy security force. the point is the same. "the conduct of the embassy's protective detail projects an overly aggressive image that has potential to generate negative opinion of the united states." this is from january 2006. with that as background, mr. kennedy, where did these guys buy the booze? >> we believe that they bought the booze from the u.s. military

come commissary. >> from the u.s. military commissary? >> international -- >> let me ask you this -- >> and there is also -- there is also a commissary on the american embassy compound as well. >> okay. >> two-part answer. >> okay. so to plainly state it, i think they bought embassy at two places. they bought the booze at the embassy. and they took it to a camp. is that fair? >> they bought -- we understand that they bought it at two locations. >> right. >> the nato commissary and at the embassy commissary and took it to their camp. >> and if they buy it at the embassy, they have to take it to the camp, is that fair? >> the bouras -- the guards are in convoys. " so, it loose -- it leaves the embassy and goes to the camp,

where the pictures are taken, right? the other place they bought booze was at camp kia. is that the nato, how? what i have never heard that term used. but can go drinking, there and they have. they had parties at the compound and came back to camp sullivan, already drunk because it could not bring the boost of the -- of the alcohol of the compound. why do you allow alcohol cells at the embassy in trouble. >> we believe that if individuals behave responsibly than they should be able to drink. there are rules about when you can drink. we have since ended the use of alcohol on cancelled and, but

there is no -- there is the ability to drink responsibly and it has never been an issue up till now. >> have you stopped out of all sales at the embassy in kabul? no sir. >> have you stopped the practice of having alcohol that is sold at the embassy being able to leave the indices -- the embassy. i can see them taking it to their house or apartment and i was wondering, have you stopped the practice of letting alcohol bought at the compound leave the compound? >> i will confirm that to you, but i believe that by banning the consumption of alcohol by the contractors, the logical extension of that, and i say a ban on alcohol consumption they're tied together. >> would you take that for the record?

ied together. i will confirm that. >> you would just take that for the record? i understand the ban is no alcohol at camp sullivan. the ban imposed by contractor sometime over this summer, is that accurate? >> the ban was imposed by the contractor in mid-august, as i understand it. >> okay. >> after the contractor learned of the incident. i think before we did. as soon as we learned of the incident -- >> that's my point. and as well the ambassador has banned alcohol consumption at the embassy compound? >> no. >> the ambassador banned alcohol consumption at camp sullivan. >> i would like to clarify one other thing. the guards move back and forth between their camp on shift changes in armored convoys. that's large numbers of guards move back and forth in armored vehicles. >> right. >> i can't tell you that the

contractors bought the alcohol went in the armored shift change vehicles. >> that will be a matter for the investigation to determine. is that correct? >> yes, sir. >> okay. the embassy rso in september '08 issued a very short memo, subject is alcohol consumption policy. september '08, a year ago and nine months or so before the june parties started, he changed the policy on consumption of alcohol for all rso employees, contractors and so on. he changed it. he said effective immediately all american staff and the rso chain of command which includes contractors are limited to two alcoholic drinks per day. my question is why in september '08 did the rso feel a need to

change a policy to two alcoholic drinks per day? what was the policy before that? unlimited? >> my understanding is that before that they used a post policy on alcohol consumption. >> what was that? >> no limitation as far as i know. >> okay. so before -- >> the operational policy of the operations in afghanistan which was deteriorating, as we know, the rso made his own decision, as i understand it, to impose this limit of two drinks and certainly nothing within eight hours of going on a shift. >> and that's the part that's in the contract. no drinks before eight hours going on. >> correct. >> my question to you is, i take this for the record if you must,

was the rso aware of partying, excessive partying, excessive alcohol consumption at the camp, was that part of his decision to change the alcohol policy to two drinks per day in september 2008? >> the investigation that's on going, commissioner. but the investigation today indicates, and i think one of the co-chairs itself made the statement, that no one from the embassy or the u.s. military were aware -- >> his statement was, we have seen no evidence -- >> that's right. not aware. >> what i'm asking you is was the rso aware of excessive alcohol consumption and was that a part of his decision to change the alcohol policy in september '08? >> that will have to be the last question. >> to get to the exact specifics of your question, we'll take that for the record. >> thank you. >> okay. you're going to be given ten

minutes because he's going to be leaving. he'll take both rounds right now. >> and i apologize for leaving early. i have to be on post. a couple points. first of all, i got my sympathies for ambassador kennedy. part of the problem at your level as i know and i think is we don't all hear everything that is going on and then we have cleanup. i think that's the case here. i think you're doing a terrific job at it. but there are other things i think you could also do. i want to be clear about this. this is the equivalent of ab u grade. last night i went on the web just to see how many web sites they had of this -- of these photos. and there were loads of them. and some of them are linked to sex web sites which really is going to look really good with muslims in afghanistan. so here we are trying to help stamp the crystal out and we have this garbage on the web. so you have my sympathies. another problem is that this

isn't really news to state. you say this is relatively new or in a new situation. actually, it's five years. because my former boss, done rumsfeld, made that change five years ago. five years is a long time. most wars don't even last five years. some last less than a week. so to say fwheer a learniwe're situation, this sounds like we're in the first grade for five years. problem there. and funlly, cure notices. i can tell you having been in and out of the contracting world, cure notices scare the heck out of contractors. you didn't just give them cure notices. you gave them deficiency letters. there were records of problems. and i, by the way, i've been in touch with a bunch of our folks in kabul as recently as yesterday. and i want to read you some of the reactions coming out of our own embassy in kabul about this. we knew nothing of the contract

problems until the story broke. an incredible breakdown of communications. problems stemming from 2007 and ds, diplomatic security, never passed this on to us. they have their own culture. i think this is the biggest challenge for you, ambassador kennedy. dealing with a culture that fundamentally is out of whack with the interest of the united states of america and afghanistan. and i'll tell you why. i'd like you to answer a couple questions. first of all, you talked about why the option was picked up with whackenhut. you picked up another option this year. there were other competitors. you can only say there were two. and it says here right on top, contracted personnel should be expected to perform and conduct themselves proper to usg commission. did anybody consult the usg commission before you picked up this contract? this option, i mean. >> well, the post is informed that we are -- that we are picking up the --

>> i want to know did ambassador ikenbury know you were picking up this particular option unless given a bill of particulars or the dcm or, i don't know whoever, anybody at the senior level where they give a bill of particulars of what is going on since 2007 and told in spite of that we're picking up this option? and by the way, there are a couple competitors out there. did anybody brief them on that? >> i'll have to check with the post. we -- the post is informed when we pick up options. i'll have to find out if -- how far up the chain of command. >> and how far in advance they were informed so they could make an informed judgment as to whether the option should be picked up. i'd like the answer to that for the record. another question. right now we're talking about possibly sending 20 to 40,000 additional troops to afghanistan. has the state department raised the defense department or with the white house the notion that

maybe in part those 20,000 or 40,000, there ought to be troops to replace the characters we have out there right now? >> on that question, sir, my only comment on that is that it is to refer to a recent decision by the department of defense to reduce further the dods use of personnel for static guards, military personnel. and dod is replacing its static guards, its military personnel with contractors. >> okay. >> we'll look into that. but i'm not -- i am not optimistic that when the department of defense does not have enough personnel to protect its own facilities, it will be prepared to loan up. >> that's in afghanistan, correct? >> that's in afghanistan and iraq. >> okay. >> both. >> well, two >> well, two things first. if they're adding troops, but leave that aside, presumably, the department of defense has some contractors other than this

one, but it could use its own troop commitment to static guards. wouldn't that be a safe assumption? that is correct. the requirements in statute require us to have a different contracting process than dod does. >> yeah, but the statute simply says go with the cheapest which is ridiculous and i'm sure my colleagues will talk about that, but leaving that aside, you are picking up an option and you have now picked up an option. is there any reason why you cannot descope the contract you now have. you're looking at me puzzled. >> let me give you contracting 101. >> what are we descoping, sir? you would then basically cut back to a limited level, if you don't want to terminate for default, if you don't want to terminate for convenience, apparently these guys are losing money. so you can descope the contract and reduce the number of people that they are contributing to a

very, very small number of posts and then contract out the remainder of the requirement to somebody else. you can bridge for a certain period of time until you contract that out and then when the option year comes up next year, you drop the option entirely and you have another contractor. a, have you considered this and if you have or have rejected it, i would like to know why. we have all options on the table and that's why, as i said in my earlier testimony, i believe in response to commissioner irvin's question, all options are under review. >> again, given the situation we've got and as you know very well with what couldn't have been a crisis. let's face it, when there were 18 guard posts vacant, you say there was no risk. nothing happened. i guarantee if something had happened there would have been a risk and what i'm hearing is from our people out in kabul, our state department out in kabul is that guns and alcohol don't mix, even two.

can you drive the streets of washington with guns in your car? drugs and alcohol don't mix. we still have a problem. what we need to be doing is getting rid of these people and whatever the investigation leads to, we need to get rid of them now because that internet is killing us. my question again is why do you think an investigation must be completed before you get rid of a contractor, before you scope a contract. because of the specifications and the requirements in contract law. the contract law allows you to scope. commissioner, we'll look at this again. one more question, correct me if i'm wrong, some of them were afghan, correct? >> no. were afghans present? the investigation was ongoing and the information.

>> can i clarify? >> please. >> thank you, ambassador, in the august 1st instance, that was an afghan cafeteria worker, a local national. i'm -- i thought the commissioner was referring to the parties.incident at the cafeteria was a single afghan worker. >> absolutely. that was the clarification. our information to date, because the investigation is still ongoing is that the parties took place among the members of the armored group ex-patriot, but -- >> on the -- we've -- he was responsible for the support people that provided life support. he personally, and it is in a statement, went out and

retrieved afghan nationals that were at the party. that is a statement that is going to come out. maybe your investigation needs to focus its questions a little better. >> as we were saying, we are in the process of interviewing all of the international employees. >> if i could just interject for the record. mr. pearson is a witness in the second panel and his statement says that one person had apparently run out of your hand and took the fire hose and put it between his legs. it is then that i realized that afghan nationals were whizzing the activity. this is the first time i had seen one of these parties. i was annoyed and disgusted i had three female third country nationals that were about 3 feet away and during the day, they were also -- there were also about 60 afghans present, two of

which were female. >> i would strongly recommend that one of the first things you should already know about is what you have just heard from my fellow commissioners. . . . it. and it seems to me that it should be top priority for the state department to determine whether indeed afghans were there which it sure looks like and then to use that, if nothing else, as a reason for bringing this miserable contract to an end, which you can do. you can terminate the default. now, one other question. you have asserted that this firm

was improving. i find that difficult to see in light of the letters and the notices and so on. did they at the time the option was granted, have they cured every single item that you had drawn to their attention and if not, how could you justify giving them the option? improvement, being on the course of improvement is not the same thing as curing everything. had they cured everything? >> let me try to -- you had several questions in a string here. let me take them in reverse order, if i might. have they cured every option? absolutely not. as i responded to both, i believe commissioner irvin, commissioner henky and commissioner green, it was a trajectory. we had attempted to do other

contractors and did not get sufficient responses. we saw the trajectory here. are we pleased with the separate results? absolutely not, as i have said, but you were asking about that specific question of performance as opposed to conduct. the performance trajectory was positive given our previous experience in afghanistan with other attempts with contractors. that was the decision that was made. as i said in my statement, commissioner, we are interviewing everyone there. everyone. i think it was right in the earlier part of my statement. the one thing i also do want to comment on is your remarks about the diplomatic security culture, and i am simply going, as old friend, respectfully disagree with you on that.

i would not find the diplomatic security culture, and i do not find a separate culture of diplomatic security that rejects the u.s. national interests or rejects the goals of the u.s. mission in afghanistan. i fundamentally disagree with you on that and simply reject it. for 37 years i've been in this business and i've seen the diplomatic security service engage in difficult and at sometimes heroic efforts to advance u.s. national interests by keeping operations going in a diplomatic way, sir. >> as an old friend, it wasn't me. i was a messenger. i'm simply repeating what i got in an e-mail and that tells me because i know you're absolutely sincere, and i know how dedicated you are and it is always a pleasure with you. that tells me i've got to disconnect somewhere that i take you at your word and i take the

person they heard from in kabul at his word and he creates a massive disconnect that somehow needs to be fixed up because that's in our interest. >> i yield myself seven minutes. i'd love the secretary to have some fairly short answers because i have a lot i want to cover. first off, it appears that what happens in camp sullivan stays in camp sullivan and the fact is it didn't, just like it didn't stay in abu ghraib. in abu ghraib, we had a military unit run amok. in camp sullivan we had charlie group run amok. and you basically made a very important comment in the beginning. you said we didn't pay attention to camp sullivan and some really bad things have happened and we take responsibility and now we're moving on. i accept that part of the answer, but i want to then just

ask you this. we've learned of these incidents from pogo. the lurid behavior, the intimidation by this group, and the intimidation is something that is particularly distressful. we didn't learn it from state and we didn't learn it from anyone else and they learned it first from a lawyer who referred people to pogo. something is really off base. when people have to go through a real different direction. there was no one that they could go to in armor group and get their complaint heard honestly. they were punished. there appears to be no one in state department they felt they could go to and not be punished and our witness from great britain will tell you that he was basically forced to go because he was trying to stick

up for his afghan employees. so this is what really concerns me. i would like to ask each of you, and are you aware of any state department employee who had knowledge of armor group employee misconduct before 2008 or after. is there any story out there that you're aware of, that you're not aware of and i would like for you to go right down. there were examples of armor group misconduct and we asked for those employees to be removed -- >> what kind of conduct was that? >> well, one of the ones was the frequenting of brothels and armor group identified the employees and we asked for them to be removed from the contract. there was other conduct by the person that was trafficking in counterfeit goods and that person was removed from the contract and there were two others that were also are you moved.

for the same conduct or different? >> different behavioral infractions. >> what are the two? >> the other two, i don't recall. >> same thing. his information came to our -- we immediately had the -- had that discussion with armor group and the individuals. >> how did it come to your attention? from armor group or someone else? >> we do get both things. it is -- one of the things that you're going to see that there's a dialogue between us. >> i don't want a long answer. i have so many questions. >> well, then -- >> yes. >> you say you get it both ways. i know part of the way is armor group. what is the other half of both ways? >> the other half is from the rsos on the ground and they're going to -- >> you've had disclosure both from state people as well as

armor. >> i would like the committee to be briefed on these other ins kenses. >> mr. boswell? >> yes. beyond the human trafficking case that mr. moezer mentioned, i was not aware of. >> he mentioned brothels. no, no, let me just clarify. is there any allegation that people were involved in either sponsoring a prostitute or in and somehow being connected with the brothel or the women? >> there are allegations out there that are being investigated by the office of the inspector general. >> relating to people -- employees potentially doing more than frequenting a brothel, but actually participating? >> i don't think i want to get into what they're investigating. >> mr. glenn, do you have anything to add other than these issues that we talked about? >> relating to -- >> are you aware of any state department employee who had knowledge of any events we heard from mr. mozer who kind of set

us off here, thank you, but is there any indication of state employees who were aware of information and did not act on it? >> no, sir. >> okay. let me ask you these questions. how did flagrant breaches of armor group's code of conduct and its contractall obligations go for senior management for months. >> is your testimony, mr. kennedy that basically this conduct was in camp or that was your camp. is that your answer to the question? >> that is the first half of the question, mr. chairman. we were not at camp. we should have been at camp. we are now at the camp. secondly, in the course, that's 24 hours and seven day in residence of the camp at off hours. during the course, though, to the best of our knowledge at this point in the investigation, we have not determined that any

information was given by anyone to the state department about these things and -- >> i have your answer. >> if i could say we spend a great deal of time interacting with the guards at the u.s. embassy and because of those interactions we do not believe at this point that any information was passed. >> why did they delay reporting news of misconduct in an attempt to intimidate people who might report it? >> i have no idea other than just to say that is totally inappropriate. >> they gave you no reason, no justification for why it took them two weeks in the last circumstance? >> they did not, sir. >> did you ask them? >> we have told them that that is an unacceptable action on their part. yes. >> no, the question was did you ask them why they waited two weeks to give you the

information. >> yes, we have asked. >> what was their answer? >> we have got get a formal answer on that. >> well, i'll just tell you, the fact that they have to do research on why it took them two weeks, they didn't tell you which leads to my next question. why did the state department display no signs of outrage at the delayed notice of problems at the armored group encampment. to me, that in and of itself would be grounds for dismissal. and i want to know why -- why no outrage? >> we are outraged by their failure to notify us, mr. chairman. it's among other things and it's in my statement that we are outraged by their failure to notify us, and we have asked in writing -- we have asked in writing for an explanation for why -- why they -- >> i got your answer. does the lowest cost technically

standard for security contracts need to be replaced by a best value standard? >> personally, sir, i believe a best value standard is always the best in any contracting exercise. >> which raises the issue. you were basically told by the dod that they were out of camp and that you would have to provide your own security and so you hired louis berger as the first contract in place to pay about, 8 million a month? >> louis berger was in partnership with pane and they were engaging in construction activities in the camp. >> is the answer yes that they're the person you engaged? >> we engaged them, yes. >> i just want a fact. >> yes. >> i'm trying to demonstrate that, believe it or not, you're between a rock and a hard place. >> yes, sir.

>> and you continued with them for a few years. >> while we attempted to execute -- >> it was terminated because they were not satisfactory, did not meet the -- >> they never actually started the contract because they failed to mobilize. >> and so then you hired armor group. >> we have -- >> you have basically dod saying we're out of here. you hire a contractor with a sole source, you have to pay a premium. you know the inspector general what is your attitude, where do we go from here? >> we would -- >> did you feel that your choice was working with a group that was doing marginal at best and going out, and what is the process if you went out? we're trying to understand -- should there be a difference in

contingency contracting and and non-war environment? and are used up with having to deal with a non-war environment and now war environment? does that make the job foolishly difficult? >> i agree. >> the last question is this and this is more fundamental. you're providing security -- is it appropriate to be delegated to contractors? should it be a combination of military and contractors? state oversees the security folks that take diplomats around. its contractors with a military person in charge. should be a combination of government or should you continue to work things out if you can have the best values at standard? >> this is out questioned the secretary has asked us to look into.

-- this is a question the secretary has asked us to look into. king into it, mr. chairman. i personally am very much in favor of the best value standard. in fact, eric boswell and i were on the review panel in iraq that made the recommendation that there be a state department federal agent with every convoy moving in iraq which is why we have assigned the state department federal agent to be in camp sullivan. >> thank you. thank you all. >> thank you, commissioner. a couple of observations and one question. one, i agree with you and best value. technically acceptable, the lowest price has been described to us several times is the rush to the bottom and sometimes the bottom isn't what you want. and that's an observation. secondly, i would like to reinforce commissioner greene's teasing out proper ererly at th

baghdad embassy. you don't have these issues and you outlined them, and essentially different country, different war, different emphasis, high risk. we're not about putting a big house keeping seal of approval with anyone, but if triple can get it right in another camp, there's an awful big lesson in that by itself. the last observation and it ties into my question for you which is going to be about state department employee performance. we've heard, and i wrote down on my notes, wow! we've heard this morning about brothels. we've heard about human trafficking with this company. we've heard about lurid parties. i would suspect that jimmy buffette.

they call it a jimmy buffette party, i guess they dress up like cribbingian or something, but i would suspect that jimmy buffette would take issue with putting his name with that party. i would, i suspect he would. apparently you're out there, but we've got so many of these things that we'll get it for the record, and last of all, i want to re-emphasize the local national issue. i visualize. cafeteria wokker. we don't have pictures of these because apparently they didn't have a camera with them. a cafeteria work aer comes out d the guys come out very, very late and with liquor bottles in their hand. i like the visualizing. he grabbed the individual like that, he touched his bottom. i guess that's a mundane way of saying it and he said in graphic

words that certainly can't be repeated that he used the boy -- you're the kind of boy that i would like to take back to my quarters. to me, it's just totally out of control and it's been going on for a long time. my question is this, we're at the end of having gone through this personally for years and years in my career, the number two guy in a federal organization with 4,000 or 5,000 people. we held regional directors and audit managers and auditors responsible if for extended periods of time there were not under their watch. that whether you want to call it asleep at the switch or not doing their job, whatever. we're in the performance cycle and we have issues with armor

and we're going hear and explore them more, but accountability is critical to any organization. and my question is as you finish your documentation, it's going fill a flow chart with everything that happened, we're at end of the performance year right now, 30th of september. are you going to hold the state department employee, it's bonus time, i know you have different pay grades of bonuses and some of those are very, very high. there were people in charge and contracted representatives that, gee, that's been going on almost a year. are you going to hold those individuals accountable? >> if we discover, sir, that there was failure, absolutely we will hold them responsible. absolutely. >> it's just critical. i say that because it does go both ways. thank you. >> mr. kennedy, secretary kennedy, i want to get back to this whole issue of the reason for exercising the first option

in the second option and what you said in response. the first round, basically is that the trajectory was up and before you exercised the first one there was a record to your satisfaction, the state department satisfaction that armor group was performing. there is a timeline that they put together with various problems with the contract and feel free to take issue with every one of these instances, but according to our timeline, just take the year 2008. in state department the state department had government-issued weapons and january 24, the state department asked that the logistics manager be taken off the contract. the unannounced inspecks and they said some for as long as three hours. april, i think it was the second of april. two former armor group employees sued the company alleging that they'd been fired after raising

concerns about embassy security. on april 30 the state department sends a letter to armor group identifying other problems including a lack of language proficiency. there were 15 reduring deficiencies and four new ones. the state department said armor group had failed to correct many of the deficiencies for 2007. on june 12, wackenhut submits a corrective action plan and doesn't implement it. in july, they renew the contract. if you have an issue with any of the instances that i just raised with you, then tell me that, but if this timeline is accurate to the best of your knowledge s that the upward trajectory that in this argument it justified the first option? >> if you take those incidents in conjunction with the staffing on the post and that is the -- that is the combination of events, commissioner.

>> i'm not sure i understand that answer, but let's take this year, 2009. in the spring there was that reconnaissance mission that we talked about earlier, operation snack pack. in march, the state department tell us armor group that it has great concern for the number of guards. on april 1st, the state department denies armor group's request to meet language proficiency requirements. a huge number of the guards can't speak english well enough to understand instructions, and then, of course, was there this june 15 party which our understanding at the state department was not aware of at the time, but all of these incidents happened this year, leading up to the renewal and the exercising option for the second year. is this an upward trajectory that justified exercising judgment second time? >> commissioner, two of the three things you cited is the

reconnaissance and the totally inappropriate parties were unknown to us when we made the award. for example, on the language training, the language capability, the trajectory was up on language training. language proficiency, excuse me. >> and what do you base that on? is there some document that establishes that the language proficiency was up at that time? >> armor group presented a plan that was followed up on by the post and my understanding is by the program management review, the diplomatic security conducts quarterly that we had pointed out to them that we were disturbed by the language inadequacy, and that they gave us a credible enough plan that we followed up on. they gave us a plan in march and by july we were satisfied that this was sufficient. >> i would like to see all of the documents that substantiate that. would you supply those for the record? >> now, i want to ask about this

investigation that's ongoing. of course, i'm not going ask about the details of it, but you said that you're not going to make a determination as to whether to terminate this contract or to pledge that you're not going to exercise further options. it's essentially the same thing until the investigation is done, and that's reasonable. i think it's fair to say. let me ask this, if the investigation and i hope it precedes a pace, and i hope that it is. if the investigation establishes that all of these allegations we've been talking about and the allegations that bring us here today are true, will you pledge to terminate the contract? >> commissioner, it's very, very hard for me to state the hypothetical. we don't know what the investigation will say. i can say this. i can imagine facts unearthed in the investigation that would cause us to immediately terminate the contract. >> so you're saying that the facts that have already been

alleged if substantiated would not be sufficient in your judgment. there would have to be additional facts. >> no. i just want to see the material on a piece of paper and then i would -- i will act. >> but again, if the investigation substantiates the allegation that we're aware of now, would that be sufficient in your judgment for the state department to terminate the contract? >> so far the only facts that are -- that are totally in evidence i guess are the three parties. is that what you're -- >> i want to make sure, commissioner. i'm talking about the exact question you're posing. >> yes, the three parties against the backdrop in 2007 and 2008 and 2009. >> if i can just inject, add to that that it took them two weeks to notify you. that, i think, goes with it. >> guyed.

agreed. if you add that in, mr. co-chair, we see a very, very serious case being made for termination. >> and if i might, if you find out that, in fact, it was longer than two weeks that very senior management knew that would just compound your concern? >> we -- when we hire a contractor, we are hiring them to provide a service or a good and to manage the delivery of that service or good and the failure on the part of management is a serious, absolutely serious, in my mind, and i'll use the word as a non-lawyer and it's a breach of their responsibility. >> i have three or four other short ones and i'll be done, mr. chairman. >> what is your understanding. i'll start with you, mr. ambassador, ambassador boswell as to the timeline and the

expected completion date as part of the investigation and every one of you starting with secretary kennedy, what's your understanding of the time by which the state department inspector general has been done. is this weeks long or months long? >> without pinning down a precise time, we had a very senior ds officer that's out there now, looking at the work that the embassy has done and i'll have a better idea when he comes back and tells me. >> i -- as you know, commissioner, there is no state department officer, not just from the ig who will sit here and tell you when the inspector general will be done. i simply do not know, sir. that's a question you would have to ask the inspector general. >> on this issue, on the technically acceptable lowest price, has the state department, you acknowledge that it was a

problem and it was a key problem and have you worked with congress to get legal relief? there have been discussions, yes. >> commissioner green? >> do all security contractors live at sullivan or just the static guards? >> just the static guards. >> where do the others reside? there is a separate camp for the bodyguards, sir. >> is that nearby? >> about a mile from the embassy, sir. >> we've heard from several folks that weapons and alcohol don't mix. would the department give consideration to looking at

whether or not whether alcohol sales to people who carry weapons should be authorized or not authorized? >> that is one of the issues that we're dealing with now, yes. >> ok, and as you know, but then every contract -- within every contract are certain administrative and technical requirements. there are also requirements within those contracts for surgeon conduct by contractor -- by certain conduct by a contractor. we are very quick to bring to the attention of a contractor the technical and administrative

deficiencies. my question to you is, when does conduct can in evaluating a contractor? -- when does content can in evaluating a contractor? >> i would say immediately when information is brought to our attention. there were several places where they employee of armorgroup was buying counterfeit clothing. as soon as that was brought to our attention, we said that that had to end. conduct and delivery of services or both -- are both incredibly important in evaluating whether or not a contractor is fit to continue to provide the services. or not a contractor is fit to continue to provide the service.

actions by the contractor received the same amount of scrutiny and weight, despicable actions by a contractor, received the same weight as do inadequate gym equipment. i would say, sir, that it receives more weight. i hope so. significantly more weight. >> thank you. >> thank you, commissioner. >> thank you. we received a document from the department of state that lifted various allegations regarding the embassy contract. it refers to allegations that were brought to the government's attention by a former employee or employees who alleged that they were wrongfully dismissed by armor group and all of the allegations allegedly were addressed at this june 27/07

meeting with the contractor. so these were two kind of whistle blowers from armor group who brought these allegations and when you read through these allegations it looks like a lot of these allegations were legitimate from what these two whistle blowers said. allegation number six says armor group's training program for new hires was plagued and that's the word. plagued with hazing and intimidations of students. the response to that says that armor group acknowledged there was a report of this type of behavior, but that allegations could not be substantiated, and the state closed that issue. so you accepted armor group's statement that they couldn't substantiate their allegations.

so this looks like an indication of the kind of attitude and culture that was in armor group if they're talking about being plagued by hazing and intimidation of students, and i want to know what state did, if anything to follow up on armor group's claim that they couldn't substantiate their allegation. we actually conduct their views after training facilities. and of the -- and so we have seen no -- we saw no evidence of hazing in the visits that we made to their training centers. >> they knew you were anything to make. and they're not going to do that. did you talk to trainees or reach out to some of the employees to see if they were aware of those hazing incidents? the regional security officers

and the a sftant security security officers in kabul engaged in discussions on post with the employees at all times, ma'am. >> this wouldn't be on post and this would be at the training center and i think when you get the person away from that environment there and they're away from the -- and you were satisfied that there wasn't hazing. your state state did its own analysis and the state came up with evidence of that. i want to ask you when state knew about the snack pack reconnaissance mission. >> this occurred apparently in may of 2009 when this section c or whatever group it was of armor group went out and dressed like afghans and went into this building to watch traffic on the highway or something like that

which was deemed to be a very dangerous situation, possibly life-threatening to some people. >> we found that out in the pogo letter. >> so that was the first you had heard about it. did you ask your rso who was on the ground at the time whether he had heard of or knew about that reconnaissance mission? >> yes, we did, and i would like to point out that the -- during that period when that reconnaissance mission took place, all posts were staffed. this apparently was done by armor group and people who were off duty. >> i was assuming they would -- >> linda, can i -- >> yes, i have a question. >> do you condone that off duty or not? >> absolutely not. >> dressing up. i mean, we talked about safety. >> thank you. >> i'm just so curious about how this rso doesn't know what's

going on on the ground. the party on june 15th was a bonfire. they got in costumes. it was fairly elaborate. it was something that if you went into that camp the day after, two days after you would think people would still be talking about it. they would know about it. it wasn't a hidden thing in one of these bunker parties or something. it was outside in the open. similarly if a group goes out and dresses up as afghan national, that's a pretty exceptional circumstance, i hope and that people would be talking about it or knowing that that had happened and yet, this rso who was on the ground and the assistant rsos didn't have a clue about the june 15th party or the reconnaissance mission? doesn't that surprise you? >> it clearly establishes, commissioner, what i said earlier that we failed to assign

an officer to live on that compound to monitor what was going on. >> yeah, but they talked to the embassy guards when they were at the embassy. so wouldn't -- couldn't they have -- couldn't it have come out in that context, stephen? >> of all the interviews that we have done to date, no one of the 165 contract employees who we've interviewed reported that they ever mentioned anything about any of these incidents to anyone from the embassy. >> it's probably because the posters are like the rat poster that was going on consequently. i am. >> i'm going to follow up on some of her questions because i thought they were right on target. >> i just need to know one little point. it's not a little point. if you have indications of hazing, that says you've got a

problem and secretary kennedy, you're basically saying you found no evidence, and yet you didn't really have anybody on base, and so finding no evidence seems to me like maybe you weren't looking for it. that's what i wrestle with. so i would go to you. >> if i could, mr. co-chair, the hazing accusations that are outlined in the commissioner's statement were hazing that was taking place at the training camp, not at camp sullivan. >> by whom? >> who was it being done by? the accusation was it was being done, the training program for new hires. >> by armor group or by -- >> by armor group. at a camp in texas. >> okay. thank you. not defending it. just saying -- >> it was not on base. >> it was not at camp sullivan. it was not in the embassy. it was not in afghanistan.

>> it was at a camp in texas. >> you have the floor. >> i would ask all of our state witnesses to stay for the other two panels and the supporting staff. i know you're busy, and i know you have a lot of things to do, but i think it's important that you hear what the other witnesses have to say and as a courtesy of the commission i would ask you to stay for the duration of the hearing. mr. kennedy or mr. mozer, i understand that the contractor, wackenhut, is losing money on the contract, is that right? they say they're losing money. >> they have submitted no documentation for the state department for equitable adjustment. >> but -- my only question is, though, it's a public record. in the june hearing they say they're losing money, right? >> mr. henky, it is true that in the public record they did. they've been in to talk to me about it. i told them what -- i toll them what the contracting officers had. we are awaiting your formal

documentation. >> okay. and if they submit what is known as a request for equitable adjustment. an rea which is really their way of saying i'm up against the wall. i'm losing money, and i need some help. what that means is they're asking you, the state to pay them more. are you going to entertain from wackenhut agna here a request for more money on this contract? >> what we would do in most instances when this happens in other contracts and it does, the usual course, we tell them, you bid on it, you bid on it, this was your correct amount and this is what you said you could do this for. unless there is a change in circumstances and material change, we don't adjust the amount that's paid. so usually the alternative to do is we say the other guard contracts we handle is to let the current option expire and go out to new competitive bids. that's actually happened

simultaneously, mr. hanky. >> so if they submit an rea, you are required to and have to adjudicate it. what our attorney would say and when we went to the contracting officer and the attorney is do the price analysis and then see that under the terms that they bid on and under the contract proposals that they made whether these would be allowable. it rarely is allowable and in most cases it's because of locally mandated wage adjustment which is don't apply in this contract. >> i want to get to this low price technically acceptable. >> i think this needs to be the last one. >> okay. i would ask for two more minutes? >> fine. >> in non-beltway terms i think that would be called a low-bid contract. fair? a colloquial term? >> mr. commissioner, all contracts are low bid. there's always a low bidder on any contract with their bids put out for them. somebody who bids lower than the

other bidders. >> but i'm not trying to characterize. i'm actually triing to help you. i think your hands are bound by law. >> correct. >> by law the state has authorization to accept the low price, technically acceptable contractor, but i think it's important that we understand this. technically acceptable means that the contractor is just pass, pass, fail, they pass. it doesn't allow you to exercise judgment that this vendor came in with a grade a proposal and this vendor came in with a grade c or d proposal, right? they're just acceptable. they both pass. >> that is correct. they both -- they both deliver on the contract specifications. >> right. >> one may have proposed a better way of doing it, but if their price is higher, we are unable to accept the better way to do it. >> if company a comes in with a grade a proposal and they

propose $1.1 million and company d comes in with a grade d proposal, but it's still technically acceptable at "1.0 million, you have to accept company d. you have to by the law. >> provided that they both meet the acceptable definition. >> you can't decide. let's be plain, in a war, you let's be plain, in a war, you a little more for a lot more quality. >> that is correct. >> have you submitted a we are in discussions with the executive branch on that. >> you will not propose legislative changes. >> we are still -- we're in discussions with the executive branch. >> you are thinking about a but it does not plan to congress yet. is that fair? >> there is no bill at the moment on it with the state

department authorization. >> i think that the law makes no sense in peacetime. in war, i think it is egregious that you have no flexibility or ability to apply your judgment and pick to you think is the best vendor, even at all a little more price. what you think, mr. kennedy? dollars my personal opinion is that you are absolutely right, commissioner. >> i like clothes and ask for some response. what is so outrageous beside the learned behavior is the intimidation of people on camp. but in terms of just enjoying intimidation and then those who might speak out. there appears to have been no when they feel like they did speak to to share their

grievance, no one in the company, no one in state, so what do they do? they may have some knowledge that they can turn to an outside private group. they turn to a private lawyer who prefers them to danielle brian, the executive director of the project in government oversight. that clearly is a breakdown. we're here today because people had to go outside the channel because they could not go through the company or free state, said they had to go outside. i am struck by the fact that there were not pictures -- that if there were not pictures, this stuff would be continuing. we see no problem. that is what is so outrageous. i tried to put myself, secretary kennedy, in your position. i think state expresses everything in diplomatic ways. but sometimes, the diplomatic

way does not cut it. this is such an outrage. i think secretary clinton made it very clear. whoever is involved in this is fired, out. i think that as the town that needs to see all the way down -- that is the tone that needs to seep all the way down. i want to say that i am troubled that the regional security officer who was there on december 2008, june 2009, august 1 and 10th, 2009, left. and did this individual had any knowledge of any of this activity? >> he was asked and he said that he did not any let the the normal end of his rotation. >> he was not asked to leave because he knew something. >> his assignment, his rotation

-- >> just for the record, you were agreeing with that statement? >> we had a discussion with the regional security officer in june. he did not mention any of these conduct issues. >> you're not aware that he had any knowledge. mr. boswell? >> i am not aware that he had any knowledge. i think it was july before the august authorities had happened. >> the record does need to be clear. >> the pizza party was june 15. >> he left in july. >> he was there for the june party and the december party. >> he was there for the main reconnaissance mission. >> you are correcting me on the artist -- august part. it is important that someone say, and, yes? >> it is our plan that we will

remain. >> thank you very much. i will say for the record that you have been incredibly cooperative and getting us -- in giving us the opportunity to ask tough questions. you can answer the questions directly and indirectly by giving us the opportunity. we look forward to working with all of you. i do want to say that no one questions your patriotism, your hard work, your absolute love and devotion for our country, and we realize that some of the challenges that you have faced are not of your wrongdoing. but that is part of the reason why we're here, to suggest changes. we look forward to doing that. thank you all very much. >> thank you. >> may we have our next panel? we will have a four-minute recess, but they can come up.

i want to put on the record our gratitude to the house government oversight committee. we're a legislative committee of congress, to chairman and towns and the ranking member, and also to the chairman john tierney and the ranking member of the subcommittee on national security and foreign affairs. they have not only provided us the space but they have been very interested in the work of this commission. obviously the senator clinton a paschal, she initiated this hearing -- claire camccaskill

she initiated this hearing, as well as the ranking member of the full committee on oversight, senator collins. with that, we have our second panel, daniel bryant, executive director of the project of government oversight, referred to as pogo. and i represented of the largest subcontractor for security. if i can ask both of you to stand, and we will swear you in. raising your right hand -- swear you in. raise your right hand. do you solemnly swear or affirm that the testimony you will give before this committee is the truth, the whole truth and nothing but the truth? >> i do. >> note for the record our witnesses have responded in the affirmative. notwithstanding the request of the committee, he gave the option to our first panel if they needed to that they could leave.

i feel a little guilty having all four stays, and they say this is such an important issue to them, that they intend to stay and to hear the second observed panel. so i want that to be on the record, and it's very appreciated that they would take the time to do this. we're going to start, i think, with you, miss brian. >> thank you very much, chairman. and thank you to the commission for so quickly taking up this important matter. the issue here is really not about pictures and drunken men. it's about a contractor that has been entrusted with a profoundly important mission, protecting our diplomats in embassy in an increasingly violent war zone and a federal agency that has utterly failed to oversee that contractor. what is truly obscene is that armor groups underperform in its mission in order to maximize profits endangering the diplomats and its own employees in the process and the department of state knew about it. we now know that as far back as

2007 an earlier generation of armor group whistleblowers vigorously pressed management to address all of the concerns that have been raised today. when these concerns were dismissed by armor group, the whistleblowers reported the misconduct to a state department official. they were fired the next day. this may answer some of the questions you have about why other whistleblowers later didn't go to the state department. not only were those people fired, but the state department never followed up to interview any of those claims that were being made back in 2007. fast forward to august 2009 when pogo started hearing from armor group guard. we discovered a demoralized work force in crisis because they feared they were incapable of properly carrying out their mission. because armor group failed to hire an adequate number of guards, lee was often revoked and guards were working 14-hour work cycles for as many as eight works in a row. the commander himself described the entire guard force as sleep

deprived. in another contract violation, most of them who make up two-thirds of the guard force required translators when communicating with their english-speaking colleagues. then we had the deviant behavior and the hazing of the new recruits, many straight out of our own military but who also drew afghan national employees into behavior forbidden to muslims. all this a conservative muslim country creating exactly the kind of saddam and gamora the taliban depict america to be. i have to say i am disturbed that so far in this hearing as commissioner irvin noted, state department kept trying to limit the issue to two or three parties. the down side to having those photos is it makes it easy to focus just on those parties. overshadowing what we think are equally significant issues. but i also find it amusing because we actually have photos of other parties of other dates. and we're happy to share whatever is of interest to the commission. but for the past two years, the

state department's response has consisted mainly of written reprimands and the renewal of armor group's contract. weak government oversight creates festering sores that breeds misconduct as we see in this case. frankly, infuriatingly, in response to the revelations, the state department continues to repeat baseless statements that at no time was security jeopardized. based on what facts can they possibly make those assurances? as some of the commissioners have noted, four times between june 7th and march 29th, the state department itself told armor group that the inadequate number of guards, quote, put security in jeopardy, quote, negatively impacted the security posture, caused, quote, serious and grave concerns, and, quote, gravely endangers the performance of guard services. nothing has changed since those statements were made. yet the state department is now assuring the congress and the

wartime commission that security at the embassy is sound. i have last week's schedule. i know they are still operating on a schedule that their own commander described as unsustainable. these public assurances by state are not supported, in fact, and make clear the department does not yet recognize its own role in this public policy failure. the ongoing failure of two-thirds of the guard spoke to speesh english adequately and hazing also directly affect the security of the embassy. inability to communicate with each other renders the guard force in an impossible situation if they are called on to respond to an attack. and with regard to the hazing, let me quote one of the guards himself. he wrote to us, i'm convinced the greatest threat to the security of the embassy is the erosion of the guard force's trust in its leadership and ultimately the department of state. the drain on morale along with the systemic retaliation against guards who did not participate in the unprofessional activities has resulted in a near 100%

annual turnover rate. this turnover rate feeds back into the guard shortage that causes the excessive overtime. so these other issues do, in fact, have a direct impact on security. furthermore, under secretary kennedy's statement to the media that most of these problems were identified in state department correspondence with armor group and therefore, quote, there was oversight present makes a mockery of oversight. unless what he meant was the other meaning of oversight which is meaning to overlook. simply documenting a problem and even imposing a fine is not effective oversight. if the problem continued to occur. the failed oversight also extended to the inspector general whose office we now know was contacted two years ago by senator lieberman's staff, yet they never interviewed the whistleblowers to examine the extent of the problem. in june armor group's vice president sam brinkley provided testimony that was also inconsistent with the facts. he asserted that the guard force

for the u.s. embassy had been fully staffed since january. however, that march nearly 50 guards stood before him at camp sullivan to point out the guard shortages that required them to be overworked and have their leave revoked. and now it's taken some of their guards from our u.s. nuclear weapons facilities to try to patch up this guard shortage. at that hearing state department deputy assistant secretary mooser echoed the assurances. who will hold these officials accountable? even if as pogo has learned, the state department is planning to transition security of the u.s. embassy kabul from armor group to train afghan nationals over the next three years, that doesn't solve the problem. nor does simply canceling the armor group contract which we believe should be done or even debarring armor group or their parent company wackenhut from future government contracts which we also believe should be done. no matter what, there needs to be an enormous culture shift in the state department. at least three problems need to

be fixed. first the state department's regional security officers must rotate less frequently, and we are glad to know they are now having a presence on camp sullivan. second, the state department must stop taking contractors' reports of compliance at face value and independently verify contractors' compliance. third, the culture at the state department must change to one that prioritizes accountability by disciplining the state department officials, as mr. tebow was questioning who are responsible. and finally it may be necessary to bring the military in to oversee the performance of the security. the larger question in whether or not the security of the u.s. embassy in a combat zone should be identified is an inherently governmental function and therefore ineligible to be contracted out. and we frankly don't know the answer to that. on the one hand, the use of private contractors security in a combat zone poses several dilemmas, but primarily the inherent tension between the affected performance of a mission and the financial