becomes a performance issue in and of itself. >> i concur, yes, ma'am. >> do you know how kbr maximize its profits? >> no, ma'am. >> i don't. lo. > > know. no. >> that is all, thank you. >> thanks to each of you for being here today. . .

>> would it be your recommendation that there be henceforth a single entity within dod that would have the authority to direct contractor drawdown in the absence of responsible contractor drawdown? >> i would hesitate to put another layer -- i would suspect

that ultimately the responsibility falls upon the commander, be it four star, all the way down to a company commander. i would hesitate to put a single person or entity from washington, d.c., that says here is the number without having an operational feel for what is going on. >> i wanted move onto a couple of other issues. a number of us will have some issues that kbr -- it seems to me they have one fundamental fair point. that is, they have to have clear guidelines from dod as to what the needs of the war fighter will be before they can draw down with any provision -- before they can draw down with any precision. there are these the tendency

basis that the u.s. government will have within the iraqi bases, and during the final phase of withdrawal from september 2010 to 2011, at the level of support provided will be -- despite the conditions that exist now. neither of those decisions have been made. why haven't fundamental decisions like that inmate? what is the timeline for making them? -- why haven't those decisions like that been made? >> i would like to point back to the general and his staff, the conditions post-election. when will the government be seated? how will that affect the population? how will that affect the security arrangement? all of these things are playing out over time. upon those actions, i believe general odierno would make this

decision is commensurate to drawing down. you talked about the tendency and the smart thing to do to give them responsibility while we are still there, to take over fob's. they still require services for our soldiers. the last point, we are working very diligently and understand the president's requirements of august 2010. until those dates are right there, it is still very fluid, but the planning is for 50,000 by august 10 and zero by december 2011. >> you referenced the political uncertainty now. there is an increase in violence in iraq and the possibility that

the iraqi government would ask us to stay beyond the time we committed. what plans does amc have to continue contractor support beyond this deadline? >> as of right now we are planning -- like i said earlier, august 10 and december 11. we do not have plans because of the uncertainty, but we feel like the contracts we have are flexible enough to provide uninterrupted support, if necessary. >> one final question for you. does amc have a formal process to apply lessons learned and to be learned in the future as to the drawdown in iraq, to the eventual drawdown in afghanistan? >> absolutely, we have gone back to desert storm and talked extensively with the leadership of the desert storm drawdown. the general put me in charge of

the response will -- of the task force that helps the -- that helps us do our mission. we have our contract in command and that it in kuwait, said the -- we have our contracting command embedded in kuwait. >> is there a process to develop a written report? >> we have lessons learned within our current operation within amc. >> i want to ask you a few questions about the basis of estimate. as i understand it, and you can correct me, but rock island's position is as long as kbr is under its work force level that no further reductions are

necessary, even if there is a reduction in the amount of work they have to do, could result in reducing the work force, because there is less work to be done. it would seem that rock island would reduce the number of authorized positions to the fewest number needed to get the job done. why isn't that done? isn't that the -- isn't that the logical answer? >> yes, that is the logical thing to do. that is somewhat what is going on. that were some of the issues brought up in that report we talked about a few minutes ago. once we negotiate baseline with kbr, the way that baseline is changed is via administrative change levels, it either ads work or takes a way of work. that issue brought up -- in

september of 2009 that mission was questioning how waskbr was incorporating them into their baseline. that is the process that is there to do that. what we normally do is -- the acl's are executed on the ground. then we go and on and once a month basis and picks up the acl's and does a swain -- does a sweep to modify the contracts. >> i want to ask one final question of you. there is a letter a number of us will be talking about. it is a january 2010 letter to you 2010kbr that ask you -- 2010 letter to yield from kbr to advise you to stand down in

discounting [unintelligible] you are familiar with that letter? >> i believe so, was that 15 january letter? >> that is right. did you in fact do that? >> no, we did not. >> what is your view of having been asked to do that? >> my view is i will not stop doing that. i will not stop evaluating cost as a part of the evaluation process. once again, all these issues go back to the same thing we have been talking about earlier. if kbr is under running a base line because an acl change has been issued and the contractor has been descoped, we need to take it out of the baseline. if kbr is under run a baseline because of the inefficiencies

that brought into the operations and things they have done, then i should not be taking that out, i should be giving kbr due credit for it. i think that is what that letter was all about, the issues of when do we descope? with kbr concluding, if you're going to descope my initiatives out of the process, maybe you should not be of value and cost. that is not what we will do. >> thank you. i am done. >> i am unclear as to how you characterize basically a company that is telling you to back off. you are doing your job and they are saying back off. it struck me on the surface as

extraordinarily arrogant, and a poor reflection on your organization. they think they can say something like that. walk me through a little bit more as to why i should not feel that way. >> i will tell you what, that is my observation. i will come back to it. i think we're going to -- >> thank you, i want to begin by mentioning it i took two trips to iraq specifically on today's subject. that was at mr. tebow's gentle and not so gentle urging. i responded when he suggested he was right to tell me to go there. this was the topic to look at. i also want to note mr. fitzgerald, i am a professor at the university of baltimore law school. you have a university of

baltimore tie also, don't you? >> yes, i graduated from the university of baltimore about 30 years ago. >> i think you are an inspiration to my students at the university of baltimore. hopefully they can attain positions of high responsibility, maybe not all of them. mr. fitzgerald, your statement discussed your march 26 audit of the four exhibits made public here. we had limited copies, said they had been distributed. -- so they have been distributed. the first is your march 26 on it, newly issued friday. it is publicly addressed for the first time. it tells kbr to make $20 million in cost savings in iraq, which includes repairs and maintenance

such as the motor pool. what did you find about kbr's charging on underutilized labor in this area? is it proper? >> based on our analysis from january 2009 through july 2009, and i want to add that the contract management agency requested that we look at this. we saw an average utilization of the labor force providing that function of about 10.1% average utilization. and never during that time did it ever exceed 15%. clearly based on those percentages, we thought there were sufficient seas to be had there. our $21 million is really based on looking forward, having the

army and kbr work together to address this issue and projecting from may 2010 to the end of the calendar year. if this issue was addressed we could potentially avoid $21 million worth of costs. >> thank you. as i understand from that audit report, after you study the first six months of 2009, to squeeze down what was going on, which -- for which the government is being charged. i understand the goal would be 85% use. instead, kbr is making 10% and 16% use, which translates that they are charging them for a 12- hour day and people are actually doing work that amounts to less

than two hours per day. on page 5 of your audit you had told -- the government told kbr to come up with a proposal to reduce this bloated figure for what it was charging, the work by descoping. they came up with such a proposal and you say, that the despoing proposal was ineffective because most positions eliminated had not been filled by most employees. kbr primarily eliminated positions that had not been filled by actual employees charging costs. in the phrase as i have come to hear here and in iraq, it was called spaces without faces, your bookkeeping entry. is there a broader risk that --

as iraq draws down, kbr, if it were to do this, would still have the government paying for labor not actually being done? >> yes, commissioner. if you look in our report, it shows after the change letter was issued by the contract officer we did an analysis to look at what the utilization rates were, subsequent to that change letter. it showed that still, on average, it was about 16%, which gives merit and credibility to the fact that some of the space is eliminated were not charging to begin with. >> when kbr says, it's basis of estimate -- we heard about this, this is level set after the contract. gives it no choice but these

high rates, this is a figure it negotiates with the government. if it is saying it has no choice but to maintain an overcapacity of idol employees. do you accept that? -- overcapacity of idle employees. >> i would say there is some degree of capacity they need to handle the fluidity of the situation, but clearly the percentages we are talking about will exceed that. >> let me ask you one other thing. the $1 million reduction, the $1 million york firm wanted and is requesting being held back from kbr, a strong position. it is the second exhibit -- i am sorry. it is the third exhibit. this is what it looks like.

this is your for on this subject. this is what you issued on march 20, so it is fresh at this hearing. as i understand, this concerns the dining facilities, 17 of them, and admits a contract officer had direct itkbr to -- directed kbr to cut the large work force. you found that's kbr was slowed and was not immediately producing these, and you are charging them for $1 billion. kbr has responded, they made a prudent decision to wait, because to do otherwise would have compromised the continuity of service. do you agree with that? if an officer directs them to do it immediately, it is at their discretion about whether to do

it immediately? >> sur, our position would be -- and i believe the change order -- sir, our position would be. most of those disapproved costs were related to dining facilities, where the result of the change order did not become effective until october 1. our position is, given they have the capability in their provisions to move urgently and responsibly, we believe they did not move quick enough to reduce the head counts and in the dining facilities as required by the contract officer. >> thank you. my time is limited, i will simply help people -- two other exhibits that have been discussed. the second exhibit, which is the only cultural page in this, is the pep board.

the red line is for the lowest possible rates kbr received. i have gone through many of these without seeing a red mark before. finally, the very last exhibit , exhibit four, which is the last two pages, or the letter that mr. loehrl received. we will have on our second panel. that is a letter which ends with the statement that has been discussed by other commissioners that kbr asks that you advise dcma to stand down in discounting the cost stewardship. thank you, mr. chairman. >> let me just art with that

letter. let me read the past -- last paragraph. kbr is willing to discuss the cost efficiencies in a briefing on december 8. if kbr said it is eager to discuss this, willing is a striking word. the fact that they basically ask you to tell them to stand down, that is stunning. tell me why i should not be stunned. >> i think it is just all a matter of perception and how you take that letter in its

totality. when i read the letter, i took it for its totality, the points being made. and already recognizing i was not going to stand down, and on that process it did not have the same effect on me. >> the challenge that the commission is dealing with is that we don't think the inspector general's and dcma are getting the respect from dot that they need to. -- respect from dod that they need to. this seems to fit into that. >> i wanted to ask general pillsbury, you have a long and distinguished career in the u.s. army. if you give a command to a subordinate to stand down, i take that to mean it cease and desist. is that correct? >> yes, sir, that is what i

would expect the person to do. >> i think reading the bio of people who will give testimony, they have strong military careers. they know what stand down is. it is the last -- you put the last sentence in a strong letter to be where you really want to go. i see it as a command. so i would like to support the co-chairman's position of concern. >> thank you, gentlemen. let me jump into this issue of the inspector general and the contract for tactical vehicle [unintelligible] you could say in one sense $5 billion is not a lot of money in this context, but it is striking from the one year the use of the maintenance crew was a low of

3.97 and a high of 9.65%. i was going to ask the question, why shouldn't i think that this maybe an example of the waste we have throughout? why would i think this is unique? i would like general pillsbury to explain to me why i should not think it is unique, in light of the fact that dcaa does an audit of a larger part of this. and they determined that the use of the contractors would never exceed 15% and averaged 10%. now we are talking about a waste of $21 million.

tell me why it is not something i should be hugely concerned with? general pillsbury? >> you should be concerned if those numbers are accurate. i don't doubt that they are. >> so we should not even ask they are accurate. why should i be concerned? >> certainly we are paying for services that are not needed. the maintenance posture for our equipment in iraq is incredibly high, and has to be well above the normal standards. the equipment is rode hard over there, too. are we overstaffed? quite possibly. >> don't say quite possibly. that is where i think there is disrespect for the people doing this work. you. dcaa and the inspector general. -- you have dcaa.

the word is if they determine if it is a fact. either you prove to them it is not, but it will be hard to prove it, because we are not talking about a fine line between 75% and 85%. your contracts as 85% performance. dcaa is saying 10% for seven months. the inspector general said it never went over 10%. i respect them more. so what i need to understand is we will have the contractors say they notified dod about the underutilization. we had a report saying there should be a requirement, but they did provide some notification. why wasn't the notification acted on? what makes it worse was that the contractor said, we are only at

10% utilization. >> at the time i believe the -- that you spoke about -- it was august 2008 -- >> we have two different reports. that is where you were under 10%. then we have the dcaa that basically said for a seven-month period, and that was exactly when? >> jerick 2009 through july 2009. >> -- january 2009. >> in may at 2009, correction, march of 2009 we had -- we have gone down by somewhere close to 46%. perhaps we have acted on that.

i don't have the specifics. >> i don't like the word perhaps the and i don't think you would like it from someone else saying that. one of the things we don't want to do is get it cheap shots, and you all are trying to catch up. i look at you and think of the incredible service you have provided this country, but what is clear from you general is that there is not the respect of the people doing the other side of the effort to make sure that we are sufficient. i don't sense this. i just don't see it. you explain to me how we are at 10% when we have the contract claiming they will -- they are only operating at 10 presents

and -- at 10%. >> i have all the respect in the world for dcaa and what mr. fitzgerald and his staff do for us. the staffing levels we are talking about here were negotiated into the contract, in what i would call a level of effort. we negotiated and told kbr, based on the request of the client, here is how many people they felt they needed at each installation in order to provide these services they need it. >> everybody can be wrong, so you are not just a little bit wrong, you were really wrong. >> i think where we were wrong is we should have been more forceful with our client and going back to our client and forcing them to look at the numbers they have requested we put into the contract. put into the contract. >> don't we have