as i said, one ends the t.a.r.p. program, and the other would strengthen the deposit insurance under the fdic. to make the point here about the fdic, i will ask that a letter dated june 29 from the chairperson of the fdic said to myself, the congress, and chairman frank, senator shelby, and senator bacchus, reads as follows -- thank you for our interests in increasing this ratio. federal deposit insurance promotes confidence by providing a place for consumer funds would provide much-needed stability throughout the crisis. insured deposits provide banks with a stable and cost- effective source of funds for their communities. it is funded by the insured

banking industry. a key measure of the strength of the insurance fund is the reserve ratio which is the amount to of the percentage of the industry's estimated insured deposit. , law requires us to maintain the ratio at least 1.15%. one of the lessons learned it at a minimum reserve ratio of 1.15% is insufficient in times of stress. one of my first priorities when as soon the chairman of the fdic in june 2006 was to begin building our reserve. regrettably there was insufficient time before the crisis hit. indeed we started this crisis with a ratio of 1.22% ratio. in 2008, as bank failures increased, the fund balance and reserve ratio dropped precipitously. the reserve ratio became

negative in the third quarter of 2009, and was -0.39%. we've collected assessments and are projected to collect another $80 billion to reserve -- to the reserve fund. we believe it is clear that as the economy strengthens and the banking system heels, the reserve ratio needs to be increased. in fact, our board has acted for regulation to target their reserve ratio at 1.25% and further to 1.35% it needed to allowed to maintain relatively steady premiums throughout the economic cycle. thereby reducing the totality of the system. let me know if you have any question. signed, sheila bear. -- she loved -- sheila bair.

these additional resources, along with the ending of the t.a.r.p. program, which will be warmly received given the strong suggestion that we had an amendment that was adapted them -- unanimously, offered by michael bennett of colorado, that offered ending the t.a.r.p. program. it was over a longer period of time. we of our expressed our views on that in one degree or another. the date of determination is there. that is the proposal to my senate colleagues that we will like to send to our colleagues in the other body for an alternative pay for provision which i hope would be warmly received as a better idea. whether you like all of the bill or not, it is a better

alternative than the one i debt -- adopted in the wee hours of friday morning when we began this conference. now turn to senator shelby. >> it seems to me that chairman dodd is proposing a budget gimmick to get a better score from the cbo over a limited period of time. deposit insurance, if it is centrally -- if it is surely insurance -- as we saw on the recent crisis, the deposit insurance fund can rapidly depleted any need replenishment. he can quickly become a drain on bonds as opposed to a source of funds. if we can create government resources by raising this, arguably we could drive it up further and pay for any number of federal programs. i believe that we need answers from the congressional budget office concerning the assumptions used in scoring this legislation.

for example, look at the year by year cbo assumption about how blaze of the orderly liquidation of party sonde -- authority. it shows it in 2012 followed by variations. up and down in the years that followed. for example, estimated allies -- outlays go down to $1.8 billion in 2018, and then go back to $2.3 billion in 2019. how does cbo determined that there will be fewer orderly liquidation in 2018 than in the year prior or the year after? where did these numbers come from? we should all ask this. what are the assumptions? we should add that. i do not believe we have adequate information about these budgetary numbers. this bill has become, i believe,

all about politics and budgetary smoke and members, and not about sound a relic -- not sound taxpayer protection. i would urge us to vote against this legislation. >> our intention -- and i say this in advance -- to limit our gathering again to this one area in the pay for section and not to open up the entire bill for other considerations, but i realize that we're in a conference and others may be able to do so, and i want to give my colleagues a chance to respond to this and what ever i did have. >> before making comments, a question. you have some kind of analysis or summary they could show us just how it is that this proposal before us, ending the t.a.r.p. and increasing deposit

insurance premium, reduce the shortfall? >> i would be happy to. this is charles. but i can have charles come in and he can go through it. the target closure -- the pay for -- the t.a.r.p. closure and others. take this microphone. >> the cdo estimates that the effect of these two provisions combined with the fully offset would actually result in a net reduction in the deficit. ending t.a.r.p. is estimated to be somewhere around $11 billion, and results in a savings of 5.7 billion. on top of that, the existing provision in the conference

report that makes permanent the increase to $250,000 that is in effect of about $8.7 billion, i believe. the cbo signed off on a combination of this language as police offsetting the cost of the bill. >> can i ask another question? weren't all t.a.r.p. funds supposed to be returned to the treasury for deficit reduction? >> that is what happened with this. it is just ending the program. >> and then -- will we will get into that in a minute. with regard to increasing insurance premiums, again, are not the deposits -- the premium is intended to be used for deposit insurance and not for other congressional outlays? >> the pay fors that the house

requires is providing this kind of offset. >> and then we could pay for a lot of other spending if we increased deposit insurance. >> their smaller institutions under $10 billion that are not burdened by this. are there other comments from our colleagues? yes, senator judd gregg. >> mr. chairman, i had been chairman of the budget member and ranking member of the budget committee. and in my experience, having seen as many tricks, and games, smokes, mirror, misdirection, shell activities, this ranks right up there at the top of alleged for pure deception relative to treating the american taxpayer in an inappropriate way and significantly increasing our

deficit and our debt. a lot is pretty clear. the law said -- i know this because i wrote it -- volos says that the t.a.r.p. funds will go to reduce the deficit and the dead. as they are paid back. why did we to say that? you are there and congressman frank were there. we recognize that we were doing something extraordinary. our people are going have to pay that back, the american people, but we expected and demanded in that bill that the banks pay the money back. we also decided, we should not spend it but use it to pay down the debt which which -- which we encourage and we owed to the chinese or who ever loaned it to us.

it was not right to go out and borrow that much money and then have it be spent. what was right was to pay down the debt which had been created to address this crisis. that is what we did. and the money that has come back so far in has been used to pay down the debt. unfortunately all the money has not come back yet. the money from the auto industry or edgy has not come back -- a i g has not come back. some money has come back and we had made interest, and it is gone to reduce the death just a loss says. now you come along with this created gamesmanship, and your -- you are taking a savings from terminating t.a.r.p., which the cbo scores at $11 billion, and

that number is honest, you are spending it. you're not using it to reduce the debt are the deficit, you are spending and in this bill. what an affront that is to the american people who we gave our word that we would use that money to reduce the debt. let me read the language of the bill. protecting the interest of the taxpayers by maximizing overall return and minimizing impact on the national debt. the money paid back shall be paid into the general fund of the treasury to reduce the public debt. now we're going to use a little bit of patience which share by claiming that the money has not yet been spent on t.a.r.p., which was obligated solely for the purpose of being spent on t.a.r.p., and now can suddenly be spent for some of these programs.

if that doesn't go against the intention and purpose and the integrity of the law that we passed earlier, i do not know what does. and the american taxpayer should be affronted by this little bit of a slide in hand -- sleight of hand. even the president should be, because the president said on the floor of the senate -- if american taxpayers are financing this solution, then they have to be treated like investors and they should get every penny of their tax dollars back once the economy recovers. the last part is important. it is been the most misunderstood and clearly communicate and part of this plan. this is not a plan to hand over seven under billion dollars of taxpayer money to a few banks. if this is managed correctly, and that is an important yet, will get most or all of this money back and possibly even

turn a profit on the government's investment. and every penny of that will go directly back to the american taxpayer. it will be used to pay down the deficit and the dead. that is what the president said. that was his understanding of this bill. that was my understanding of this bill. now with the american people's understanding of the bill. but now we have a new understanding of this bill. $17 billion going here. let's spend it on some other program. and then we have this fdic gamesmanship. i mean, what a piece of misreading, misdirection, financial management this is. you're going to raise the fdic the and then score them and spend them under this bill? when those fees are supposed to be being used for the purpose of taking care of the banking system and making it safer and sounder?

how do you do that? how'd you spend the money twice? disbanded in this bill, and when a bank goes under and new hampshire or connecticut, and the people who have their entire life savings in that bank expects the fdic to come in and protect them to the extent of $450,000, you just get the money on this bill. how do you do that courthouse you spend the money twice, mr. chairman? it is impossible to spend the money twice unless you are in the united states congress and you ignored the rules of financial budgeting. if we did this in a private sector, we would all be in jail. this is fraud and the american taxpayer, that is clear and simple. that is all i'm going said. and this is a responsible way to address this issue? i guess that is why we are 13

trillion dollars worth of debt and we're doubling in five years in tripling in the next 10 years. this is not responsible. this is profligate and not even honest. it is misleading, saying one thing and doing exactly the opposite, spending money twice, by allied it -- violating a law that we wrote -- not all little sense of a law, no beer you can get the attorney general to say, on obligated funds were never listed in the language of what goes back to pay down the debt. it did the money that comes in. well, you can get an attorney to parse the words that way, but everyone understood, beginning with the president down to that person on main street to pay the bill on the interest on the nose that the chinese told, that we want to pay down the debt. that should be our goal. and this not only does not do it, it does the opposite -- it

spends the money. i find this to be unconscionable, inappropriate, and clearly misleading, to be kind. i have an amendment at the proper time. we have to do this the right way and not use t.a.r.p. funds and claim that we're then reducing the debt when we are actually spending the money and violate the law, and i use fdic funds and spend them twice. and i suggest that we use the stimulus funds which actually are available to u.s. and could be spent on this initiative and would be an honest and fair offset. and i will make a proposal at the appropriate time, mr. chairman. senator reid. >> just quickly, i notice some disquiet by my colleague. i think it's because this bill

represents one of the first major initiatives that we have taken in the area of financial regulation that is actually paid for. over the course of the last several years, particularly in 2000, many initiatives were not paid for, tax cuts, part d medicare, two wars -- so paying for something comes as something of a shock to the people here. if i understand the previous position that we're now positioning, it calls for tax and financial institutions that ultimately would go door to -- cote toward deficit reduction, but -- but that is being rejected because colleagues consider that to be an inappropriate balanced budget. the tax proposed initially represents a fraction of the

bonuses that are handed out by financial firms. and the rationale that by taxing these firms will deprive them of the capital to invest in the economy, the same logic applies to those bonuses. when those bonuses go too well rewarded, compensated individuals, that would impact on business loans, etc. i find it hard to understand why we are rejecting the initial proposal, and this proposal does what had not been done enough over the last 10 years, it actually pays for, under the cbo scoring, the official scoring, a major initiative. the final point i will make is that all of this discussion about takeover rigid -- paygo, if nothing changes, the winner

is wall street. derivatives will be unregulated. responsible capital requirements will be set aside. and the winner will be wall street, not main street or the american people. i would have preferred the first proposal but i think this proposal pays for it and does so in a way that is recognized by the congressional budget office as appropriate because of the paygo rules. >> there is a strong emotional response we have people who fundamentally disagree with this legislation and opposed all idea of the kind of reforms. that is a legitimate debate. their ideological differences, and i think everyone of us at one. another, if we could write the bill alone, we would probably write a different bill. but we write it in a collegial fashion here taking into consideration various interests

and concerns of our constituencies with a goal in mind -- to come up with a solution that avoided the kind of collapse. we did so in a way that was painful to people. i absolutely agree with the observation that had been made i think the country would be in much deeper and dire straits that we could fund as a nation. but clearly the idea, after all of this in the effort to come together to try and address those concerns so that we do not find ourselves once a within back where we were in the fall of 2008 with nothing had been change whatsoever and all the vulnerability, what is our response to the american people and ask have you done anything about rating agencies? streamlining the regulatory process? what have you done to see to it that we're going to have the

kind of response out of the federal reserve, to see to it we have the oversight to identify crises before it they metastasizing into situations that put our entire financial system at risk? there are long list of things in this bill but i think strengthen our economy and make the economic structures of our nation reflect the 21st century in which we reside in live, and it shares the responsibility of moving forward. so coming up with a pay for in all of this is not easy. but nonetheless we bear that obligation to do so. and by reducing the obligation from $700 billion initially down to $475 billion, ending that program which many have talked about, i thought would have been more warmly received. and by relying on what is needed to replenish the fdic, what is the alternative? to borrow from the treasury?

we don't have the resources to keep financial institutions operating from a friday to monday? i don't see is that -- see that as an attractive alternative. by getting this course that we need to to accommodate the budgetary concerns seems to me the wise way to proceed on this. that does not satisfy those who are opposed to the bill. i understand -- i am not one to solve that problem by coming up with an alternative pay for that made me more acceptable to colleagues who have to vote for or against this legislation. that is the reason for it. trying to come up with an answer that makes sense to people. people still want to invest and i'll be glad to entertain those ideas but we do need to move on this as well. senator corporatker. >> i have been relatively mild mannered for this conference and

i tried offer amendments for the good of the people. i have to tell you, mr. chairman, the comment you just made is one of the most disingenuous comments i've heard made during this conference. there are some here that are ideologically opposed to reform -- that is absolutely not true. and you find yourself wrapped around the axle right now. >> they are ideologically opposed to this answer of our reform. >> that is not what she said. you haveea group of people over here who worked hard to come up with a bill that makes sense, and you are wrapped around the axle right now trying to solve this problem because you have only enough votes to pass it, because you have tried to press the envelope, create a bill that is more partisan than necessary when you knew you could have had a bill that had 80 votes and loss people on the right and

left to do so. when you say that there are people in this room that have -- are just fundamentally opposed to financial reform, that is absolutely disingenuous. i want to say to the gentleman from rhode island, wall street is going to be fine. for years to put on mr. rate that this is about wall street? come on. wall street is up. they are loving it. they've got people to work with regulators. they're going to be fine. is the community banks around this country that are going to be heard. many banks do not have teams of compliance officers to deal with the thousands of pages of regulations they are going to be dealing with. i have been pretty mild mannered but that is absolutely, categorically untrue. and senator bennett, i wonder if he is aware that you were taking $10 billion of the legislation to spend some place

else, and some of the republicans -- were you ever created a class act of pay for it. we have created a long-term insurance policy that we knew was never going to be funded and we use that money to pay for a bill, and that is the same thing we're doing with his fdic fund. mr. chairman, i have deep respect for the way they view from -- you and its chairman from house i have conducted this conference and i appreciate you having a conference that was a real debate. but to say that there are people here that are fundamentally opposed to reform is categorically untrue. mr. chairman, i have to tell you what we are opposed to -- what we have done in this bill to not address the core issues, but haven't overreach in so many areas that was unnecessary on behalf of a political agenda that has nothing to do, in many cases, with financial reform.

>> i thank you for your comments on the bill. >>: default on his comments because, just to make it clear as we discussed in this proposed change the problem has come up with the bill if that it spends more money. the provision that were adopted last thursday night and in the late hours of the night to address that were not acceptable to many of the many -- many of the other members of the house -- the senate as they lifted the increase in expenditures. so we are back at the table to try to deal with it. what is the proposal that we have? i have to agree that it is smoke and mirrors in the budget at the extreme. first, we're taking t.a.r.p. bonds that were promised to the taxpayer that they would be utilized for the purpose of the t.a.r.p. program and then repaid to reduce the deficit.

in response to my question, were they not to be used to reduce the deficit? yes, they are going to be used. after this bill has increase the deficit and they will be used to partially repaid the increase in the deficit that this bill has generated. that is not what we tell the american people. we did not say that we will use these t.a.r.p. funds to reduce spending that we will do in the future. we said we would use them to reduce the deficit when they come in, not offset other federal spending. that is exactly what is being done with these t.a.r.p. funds. they are being used offset new spending and that is exactly in violation of what we promised. with regard to the deposit insurance fund, simply increasing the premiums in the deposit insurance fund will increase the fund available for the deposit insurance program. and those funds are intended in

my mind to be treated like a trust fund. we're helping to build up a deposit insurance fund that has of pacific purpose in law, to help protect against deposit failures when banks fail. and to provide insurance for those who find those banks that failed. and yet we have a budget role here, and now we use that word politely, that apparently allows us to spend money in other programs if we increase the amount of money in the deposit insurance program. that kind of gimmick could have been used -- if congress and on the board today -- cannula mao -- imagine the amount of federal spending that congress would have tried to get away with, just increasing the money in the federal deposit insurance fund, and an offsetting it? that is what we're doing with this bill. we need to deal with this properly. the chairman asked is, what is the alternative?

the alternative is to offset the spending by cutting spending somewhere else in the budget. bed at $3.80 -- $3.8 trillions in the budget, we should be able to find it if we propose brit -- if we propose to increase in this bill by another $19 billion. >> any other comments? center greg -- senator gregg comedy 11th amendment? the clerk will report the amendment. .

the chairman has been fair in soliciting a our thoughts. early on, we had some good working groups on our side. on our side of the aisle, is disagreement with the way this bill evil then came forward. but that is not with this issue before us is today.

the issue before us today is if we as a congress will continue on this path of saying one thing to the american people about fiscal discipline and then doing the exact opposite. we are saying we will pay the $19 billion in cost in this bill and we will meet the pay-go rules of the house. it does not apply to the senate. at the same time, the proposal brought forward double counts and double spends money and then spends money that is specifically earmarked to reduce the debt. so we told the american people we will pay for this, but we are really know when to pay for it. we will use an account that is supposed to be a trust account to offset other spending.

we will use an account that was set up for the american people to be used for the debts or new spending. that is a lot of money. it is a fair amount of money for new hampshire. but we do this for tens of billions of dollars almost on a weekly basis around here three months ago, there was a pay-go bill passed in the senate and in the house. since that bill passed, we have either passed to put in the pipeline two hundred billion dollars in spending that violated the pay-go rules, the purposes of pay-go, and added to

the deficits and the debt. now this is going to be added on top of that. so it should not be done this way. independent of whether you believe in this bill or not, you should agree that when we say we will pay for it, of the taxpayer can look get it and say, yes, that is a pay-for. real dollars should be spent to pay for this. this is why i am offering this amendment. let's not do this tarp language. let's not do this fdic language. while you're at it, let's confirm the fact that, when we terminate tarp, that the money from the terminated card funds will go to debt reduction.

this fall -- some of this will be spent in 2019. we can do it. we can find those dollars. let's terminate tarp and put the money to rent -- put the money to debt. >> senator shelby and then senator saxby. >> i support the brady amendment. it makes sense. but everybody here in the house and senate knows that senator greg has deep interest. he is the top republican and is a member of the appropriations committee and the banking committee. when he is talking like this, i

think he is making a lot of sense. i would urge my colleagues to support his amendment. >> i always think he makes sense, by the way. >> mr. chairman, thank you. i am not a member of the banking committee. i have not engaged on the number of these issues that involves exclusively banking amendments, but this is so egregious. you cannot sit here and let this happen. this is tarp money. it is money that was a poster is a legos to solve the crisis by buying the toxic assets that later got utilize to help the banks. at the end of the day, a lot of the reasons that we voted for the bill is primarily because that money, when it was paid back, was going to reduce the deficit. that money was not supposed to be spent in any other area but

we are trying to do now. secondly, i e-mail one of my community bankers say. this is what is fixing to happen to you and give me your reaction. fdic rates are going from 1.5% to 1.35% 06 to read the e-mail that i got back. but it would be censored by c- span. the fact is that, if you're a depositor, he will be extremely upset when you find out about this. the general public is still mad as hell because the majority party used the student loan program to help fund the health care bill. people all across america, particular people who have money as they put in banks and they know it will be safe and secure because fdic insures it should and will be mad as hell when they find out that money that is being spent to ensure their

deposits is now going to fund a financial bill that frankly does not solve the problem of the issues that caused the financial collapse. i think senator gregg has a better solution. if we have a solution at all, i think it is a good amendment and it ought to be supported. >> let me respond briefly. first of all, under the proposal here, i do know if my friend from georges bank -- from of this does not make an increase at all. most banks -- in fact, the icy ba is calling around is strong support of what we are suggesting here.

the smaller banks that are struggling and any other assessments on them would be imposing hardships on them. the reaction is to be in strong support of them. there are choices. ending the tarp program, i did not think it would be met with such strong feelings. the alternative idea actually helps replenish the fund. the idea of cutting stimulus -- i know people do not like the stimulus package, but the bridges, highways, roads, and jobs at a time when you have stayed in lehigh and employment and tried to get the economy -- when you have extraordinarily high unemployment and you're trying to get the economy going,

to have these institutions contribute to this and solve the program and ending the top program is one thing or do we still provide a stimulus package? i think we ought to keep the stimulus package moving right and keep people working and get the economy moving right and ask those who have the resources who can afford to pay for this and ending the terps program would be the better choice to make. >> chairman, may ask the question? >> you just said twice that he will end of the tarp find and use the money to reduce the %+bt. that is now with this proposal does. it does the opposite. it ends the terps fund and then uses that money to offset new spending.

hal -- what is the logic for that statement? >> it prevents tarp money from being spent. if truncates the program immediately. it cannot be used for any other purpose other than for the funds that it is already obligated. >> if you take my language in this amendment, it does end of the tarp program and uses the money to reduce the debt. it does not spend it. your proposal spends the money that is an address by the termination of tar. .- termination of tarpo if you take my language, that $11 million would reduce the debt.

>> over 10 years, there is a $3.2 billion savings according to cbo. >> mr. chairman? >> i would just like to weigh in here. as i understand what the response was, it is clear what you are talking about. this bill increases the deficit by $19 billion. it is that the visit that the terrapins are being used to reduce. -- is that deficit that the top funds are being used to reduce. >> let's not forget. we have been ex-anti-fund.

at the request of my republican friends and colleagues, that was stripped out. that would have given us their resourced to pay for this bill and the leading us in the black. at the request of my colleagues to strip that out, i find myself in a catch-22 situation. no matter what alternative we come up with to pay for these things, it is just unacceptable. i worked with great friends closely on this. but no matter what the answer we come up with, except one that will stimulate the economy and put our people back to work again, this is the only way we can do this. we need to vote on this. >> mr. chairman, how to speak in support of the great amendment. i cannot imagine, after as much

work that all of you have put into this, you want to end by having headlines in the paper to mark saying that you used accounting chicana read to pass the bill. that is what this is. senator gregg has an amendment that actually pays for it and does it in a real way that americans can understand. i hope you will support the brady amendment. it will solve the problem that you are in. i supported very strongly. >> the words to carry do not help the debate. but there choices to mediate here. -- trish is to be made here. -- but there are choices to be made here. working americans are struggling. i think teachers we're making here is the better choice.

>> -- i think the choice we are making here is the better choice. >> ago with the tart language was created under section 204, it says that recission of any amount provided in this action will not be counted for budget enforcement. the means we will be violating the law by doing this, in my opinion. you may find yourself with a legal issue on top of it. i wanted to make sure the record was clear on that. thank you. >> the members are entitled to their opinion as well. call the roll. >> mr. chairman. >> no pi.

>> mr. schumer. >> know, by proxy. >> ms. lincoln. >> no, by proxy. >> mr. harkin. >> no, by proxy. >> mr. shelby. >> aye. >> mr. corker. >> aye. >> mr. chambliss. >> aye. the amendment does not pass. >> any transaction for the

indians would be exempt from the requirement. even if the transaction is not due to be cleared because one of the end user is one of the counterparties, the dealer counterpart will be subject to this transaction which means that a dealer counterparty will pass this margin and pass the cost to the end user. under the senate bill provision, there would have been assured that there was no margin requirement on the transaction. this is an unintended consequence that have been in the last minute. i have an amendment that would cure this problem and ensure that no end user that is

declared as exempt is going to have to post margins, which was the original intention. it was in the senate bill originally. that is what will intended to have take place. there was no discussion about that provision in the amendment that was ultimately accepted in the conference. i would ask consideration to my amendment and vote in support that air of -- in support thereof. >> we spent a lot of time today talking about this. there is a difference of opinion on how clear the languages. is that theation language is clear. we want to keep coming back to this conference and strictly focus on the pay-for provisions.

it was up to the members to decide to clarify what we believe it is the language. >> procedurally, a move to reconsider the title that included the pay-for. someone, when it comes back to us, they might move it. we closed all of those titles and voted to do it. at this point, the house is not procedurally hoping to upset any other title unless some items for consideration. procedurally, we're not prepared to accept offers on any other subject. >> i understand that. i think we can help clarify this language in the approach replace. >> i appreciate your offer to help clarify, but the problem is that it colloquy the on the floor is not going to help us if the language is clearly in the other direction.

the financial community is up in arms over this and rightfully so. i happen to think that end-users will be required to post margins by this. that is not what we intended. it is one of those additional provisions and one of those expenses that will have the results of driving more and more of these transactions offshore, putting them back in the dark. that is not with any of us want to do. but it is a provision that will have serious consequences to end users that we thought we were treating properly. >> we think the clarifying language in a colloquy will help alleviate the concerns for the people that have raised this issue.

we examined the issue today. had i felt that there was legitimacy to what was being offered here, we would deal with it. i might also suggest that, by pursuing a vote on the matter, it will not help the legislative history. is it to memmers themselves if they want to pursue it, but i strongly recommended that you led us view this in a way that we all agreed on. it was not designed to subject literally all of these individual organizations to have to meet margin requirements. i recommend we go back route rather than voting on this matter. >> mr. chairman, you have had the votes all along anyway. i am sure i know what the outcome will be. what i would prefer is that you expected and that the house make an exception and take this one

clarify provision. if we do not, it will have consequences that neither the house nor the senate intended to have in the most complex and controversial and discussed and debated provision for a title that we have in this entire bill. while i appreciate would chairman frank said, i do not think he wants this to happen. i do not think that he wants to end users who are exempt to post marginal requirements. that was never discussed. i think it is a huge mistake for us to do otherwise, mr. chairman. >> do you want to pursue the vote? >> yes. i would like a recorded vote. >> the clerk will call the roll. >> mr. chairman. >> no. >> mr. johnson. >> now, by proxy. >> mystery. >> no. >> mr. schumer.

>> know, by proxy. >> ms. lincoln. >> know by proxy. -- no, by proxy. wait, a little bit. senator lincoln, aye by proxy. >> mr. harkin. no, by proxy. >> mr. shelby. >> aye. >> mr. kriegel. crapo.mr. krieg >> aye. >> to the measure is a tie and it is defeated. >> we are going to recess for five minutes.

[gavel] >> come to order. let me say, we previously had a tie vote and the proposal failed on the tie vote. as an expressive to senator chambliss, i believe -- as i

expressed to senator chambliss, i think it is important to note that, while i do not necessarily disagree with what he is suggesting, and the fundamental reason for the vote on this side has less to do with the substance of the thing. the fact of the matter is we have a limitation on the parameters of this conference to be focused on the title that deals for the pay-for provisions of the deal. i'm prepared to work with my colleague from georgia on this to see if a call away solves the problem or something else may be done. >> in the procedural footing, i hope to not vote to reconsider. this is a very large bill. i think we would need a technical corrections bill that goes beyond just minor things people on the house side also mentioned that same point.

i am committed to a bill subsequent to this on things that are not terribly controversial. once we have the whole bill done, there becomes a mutual interest in clarification. if we were to reopen the conference now on other issues, i believe the thing will unravel. >> i appreciate the comments of both chairmen. the only thing i would say is that this is not a technical amendment. this is a very substantive amendment that will be very expensive on the end user. >> it is a correction when he is saying is that it was not intended -- is a correction. he says it is not what was intended.

i believe we will need to do some corrections. something of this magnitude, there will have to be a second and smaller bill better not as controversial within the context of the overall bill. >> this title of the bill does not go into effect for one year. so there will be the time as well to examine whether or not the call we will solve the problem. i am not arguing whether or not my colleague is right. helps have a window that' to solve this problem. >> was the least to try to fix it. -- let's at least try to fix it. >> not to the senate proposal.

the clerk will call the roll. >> mr. chairman. >> aye. >> mr. reed. >> aye. >> mr. leahy. >> aye, by proxy. >> mr. shelby. >> no. >> mr. crapo. >> no. >> mr. chambliss. >> know. >> the voters are 7-5. the measure is passed. we can send this proposal to the house. all those in favor?

the ayes have it. >> under consideration, this is no (a recognize the gentleman from alabama. >> thank you, chairman. we convened at 5:00 p.m. we got a three-minute notice as to the amendment. but it was not three minutes before the meeting. it was three minutes after the meeting started. here is the mail. i would like to put -- here is the e-mail. i would like to put it in the record. attached is a copy of the amendment that will be addressed at today's meeting. this bill is like giving due consideration. we have all been out on the

highway and seen an 18-wheeler that is swerving from lane to lane and we said that that driver has not had any sleep in 16 hours are 20 hours. last thursday and friday, we had a lot of weaving. part of the weaving is going to cost american companies as much as an estimate of $1 trillion on the derivative pursuit. now we hear that we will declare martial law. what is -- one is the last time you heard that? the health care bill. .

suddenly, that money disappears. it magically reappear. it appears out of nowhere. i have to see that. i've never seen that in my life. will make it through debating

the main amendment, i will make a motion to reopen title 7. we reopened 13 and 16. i will discuss the associations are saying about how much this is going to cost. i think we agree jobs is the most important issue. putting people back to work, keeping people at work -- that is what the amendment was about. i've got several questions. i thought maybe that a staffer was going to answer its . senator gregg asked your stafford to explain the savings to the country. what he said was the provisions have savings.

this saves us this much and this one that much. he never told us how that was going to happen. i've got all kinds of questions. one of the things we keep hearing is that you are going to shut down tarp and all the programs. a are you going to end the capital purchase program? can someone give me a yes or no on that? we actually added more money to that -- or my friends on the majority did. how do you shut down a program three months early and that suddenly saves you 10 or $15 billion? were you anticipating you would send me lose $15 billion somehow?

i think these are all legitimate questions. i would like chairman frank -- they say is the smartest guy in the congress -- i would like to answer this question. >> your time has expired. is there further debate? the gentleman from california. >> thank you. let me make this point that this bill in large respect will restrict access to credit. that is one of our key concerns about this provision. adding another assessment is going to further compounds that credit contraction that we are experiencing. for all of us 11 talking to small businesses in our district and worried about capital and how they will

handle their payroll, right now to do that seems like a real step in the wrong direction. with respect to tarp, i opposed it when it was initially constructed because of the strong suspicion that it would turn into an endless gravy train. what we have learned through this process is just that. on the democrat side, we had an initiative for a while that the majority was pushing for tarp funds to go into the affordable housing fund. once you start down this road, it is very hard to get it back on the correct path. we incur all of these costs for what?

in one sense, we continue to expose taxpayers by codifying the too big to fail set this up for certain select wall street firms and offering public money as the initial source of funding to bail out the creditors that are funding the ferns. -- firms. those who are making the argument and telling us that this is a pay for where the same folks there are saying the tarp fun to be repaid to the american tax payers. i think we know that that is not going to happen. lastly, if you think about it, this is a yearly -- eerily reminiscent of the gimmicks used to pass a health care bill. congress did thousand out to appear to pay for a massive new entitlement program for .

we are going down the road again. to what end? the bill creates the illusion of safety. by compounding moral hazards with this virtually unlimited government guarantee, we are going to further undermine market discipline. we have a situation with 45% of the financial system as a government back stock. it'll go up to 60%. it'll be $25 trillion. that is a majority of our capital market that will have the government standing behind it. there is a lot of moral hazard standing behind that. it was to allow bankruptcy to speak it up -- to beef it up. i think it would have been a

much preferable course. thank you. i yield back. >> thank you very much. thank you to chairman frank and is chairman dodd. i respect the hard work and hours that you have put in to try to come up with reform in this financial-services community and regulatory reform. i know the you have worked hard. i respect that the and the i am like senator reid. i really did like the proposal that would tax the too big to fail banks. i am sorry that we gave in to the senate.

that proposal got lost. we ended up with something that supposedly was targeted to reducing the deficit 25 years from now or something. i am concerned about the foreclosure crisis in this country. i know it may not be a popular thing to talk about. there are those that would have you believe that every body fat is in a foreclosure crisis. everybody that is in the foreclosure crisis is at the fault of the homeowner. there are those that would have you believe that they were just irresponsible. what they cannot explain is why all of this happen at a certain time and why so many homeowners all across the country all of a sudden ended up with mortgages

created by exotic products by the banks and why it happened, when it happened, and how it happened. i do not believe that the homeowners or those that were trying to realize the american dream or simply trying to gain the system. what i believe is that major financial institutions in this country created these liar loans and every other kind of exotic product you can think of in order to get people to sign on the dotted line with mortgages they did not understand and they were certainly not able to pay. i believe that the taxpayers of this country and those homeowners and those people trying to realize the american

dream need some protection by the public policy makers that they sent to washington, d.c. to look out for the interests of all people. i do not think the hamp program is working. 2.8 million homeowners received a foreclosure notice in 2009. there were three and 23,000 foreclosure filings in may 2010. that is identical to may 2009. the response continues to lag well behind the pace of the crisis. as a may 2010, three and defeat thousand homeowners have received final five-year loan modifications. that is a small fraction of the borrowers that are 60 plus days delinquent.

the congressional oversight panel said that only 275,000 households will ultimately avoid foreclosure because avoidhamp. "it seems clear that treasury programs will not reach the overwhelming majority of homeowners in trouble. the goal is for hamp to offer lower modifications but only some of the offers will result in temporary modifications. only some of the modifications will converge to final five-year status. some will eventually fall behind on their payments and face foreclosure." the goal since malta the magnitude of the problem.

that is by the congressional oversight panel. it says no authority under this act may be used to anchor -- >> your time has expired. further debate? >> i do not suppose it rises to the level of the louisiana purchase. for us to have received roughly annan hour of not less notice to this conference, to receive an amendment that is a court to this entire legislation and to receive that three minutes after the conference was reconvenes on an amendment that i believe is fundamentally deceptive to the american

people is fundamentally unfair. i do not understand how money can be used for two different purposes. i heard the distinguished chairman of the banking committee say that cbo has said this or that. the good people at cbo scores would you put before them. if you do not put before them that they will use the same bottom money for two different purposes, that may alter the score. i've heard cbo discuss. i would hope they will make it available. i have heard the chairman of the senate banking committee say to

leave it to tarp. harvester not have been extended in the first place the the -- tarp should not have been extended in the first place. i am not really sure they terminated tarp. we have existence programs. it says you cannot add new programs. with respect to bringing the ceiling down, there is a language that says as long as the secretary of treasury can get the fed chairman to agreed with them then he can go back up and raise the cap. i do not see this as terminated the tarp program. the american people were told this money would be reduced to reduce the deficit that has increased almost tenfold in the last two years that has contributed to the largest debt in the history of america. now we are at a tipping point of

having our debt the 90% of our economy. greece is at 113%. here are taking money away from the tarp fund. i do not understand it. telling the american people that somehow by magic it will be used for two purposes. these are funds that are stressed. on the one hand, we say we will add to the deposit insurance fund and that needs to be done. on the other hand, i have a lease in earlier cbo letter that said the legislation is going to increase to expanding by $26.9 billion. we are going to use the revenue -- this congress is obviously the payfor is the last thing

anything thinks about. we are going to use it as a pay-for. isn't it interesting that your writing into this bill and office that supposedly is going to root out abuses, unfair and deceptive financial practices. that is exactly what this is. the very first thing that this ought to do is outlawed this funding practice. it is unfair. if this abusive. it is deceptive. this is the kind of accounting that could make bernie madoff blush. here we are, members of the united states senate and house, getting ready to pass this. i do not understand it. it is still a tax.

it is a tax that all of them is going to lead to less credit, more expensive credit, and fewer jobs. that is what this is all about. i yield back. >> the gentlewoman from illinois. >> thank you. i am concerned about the fact that we did not receive this amendment. i can remember when tarp first came up in the house and the first bill really did not have the accountability. most of us voted against it. then there is this crisis if the market was going to change, it could never recover. i can remember calling senator gregg about that in saying, how are we going to ensure that

there is accountability? what he said was, the money that comes from park definitely goes to the debt. i think they've always counted on that. many of us voted for that reason. now we are going to say that the tarp money is going to pay for this the bill. what worries me is that pete peterson's foundation was at a hearing that we had on the oversight subcommittee professor -- subcommittee. he said we are at a tipping point only have one or two years to solve this problem of our debt. the first thing we have to do is to tell the truth to the american people. they have been lied to. we are going to have to do the sacrifices including the

congress. and stop spending. this is just changing. it is still going to be $19 billion that is going to increase our debt at the least. then i think we have this problem with the end user which we want it to. it concerns me that one we know that something is wrong, we should do the right thing. i do not think that people want to vote yes for a bill that is not the way it should be. we just cannot do that type of thing. >> new jersey.

>> thank you. someone said the we should rename the bill to the franc/dodd bill. he does combine that to the broad bill to describe exactly what we have here now. it amazes me that in this day and age when our constituents are going through such hard times and americans are asking for congress to do the right thing, smaller government, less spending -- here we end this bill process with doing the exact opposite, a larger government, increased spending, and increased taxes. there is no other way. there are no other alternatives.

we are in a catch-22. really? there is no other way? when it the novel if just once from the viktor departed the we would hear the idea of cutting spending, reducing spending, finding some offset some place. in my state in new jersey, we did just that. we did it in a bipartisan manner would take governor chris christie reaching across the aisle taking a budget -- a $30 billion budget, reduce spending by $11 billion, 9.2% over time. bipartisan without any tax increases like we are talking about here.

can you do that here? the answer from the majority party from both the house in the senate is "no." really? he cannot do any better? the center brings out the letter from the fdic with their comments with regard to the raising of the money. it makes the -- if you read the letter, what the chair woman was saying -- she points out if they were already planning on doing that. maybe not of to 1.35 -- the reserve ratio already needed to be increased 1.25. the idea that they are supporting this idea going to 1.35 as a funding mechanism for

this is not really here in this letter. they are just saying that in light of the crisis they recognize the need to strengthen the fdic. and do nothing the letter really support the argument that you are making. if it did come to think about it. where is this fbi -- fdic funding going to go? a depository institution, is it not? we afford to start taxing banks to fund non depository institutions. that would raise a lot of concern from our local bankers. they are not suggesting that. finally, to the point in the cbo scoring, while i did appreciate and found it interesting with the senate staffers were sort of running the show as opposed to

the centers themselves. we find ourselves in the same boat today. we have been here for almost an hour and 45 minutes. i am still looking for that proverbial cbo scoring to document exactly where the money is coming from. we still do not have it. [unintelligible] it is troublesome. to go back to where i began, the program name for this bill is probably the frank/dodd bill. to the constituents, can you do anything better than this? my question is the same. really? can we do better than what you are suggesting? i yield back. >> the gentlewoman from west virginia. >> thank you. i like to make two brief points. one is on the fdic increase in

the percentage. having found this out, i do not think any of us have had a hard to argue their community banks and other banks in our region to find out what this really means to them. i do not think we a had time to have a reaction because they have not had time to share this information chairman dodd says he has existed out community banks. tim million dollars and below will not be affected. over the life of the bill, maybe you are not affected by it today but you could be if you grow and do the right thing. you are going to be affected by its not maybe two or three years or four years. more financial institutions if we are not disincentive growth are going to fall into this. more of our community bankers

and local job producers are going to be falling into this. i have had several meetings in my office where community bankers have come to my office over the last three years and are straining under the fdic fees. it has been a difficult thing in difficult times bu. i do question that in the overall effect. the most frustrating thing for me here, i handle most of that on my side, we did not look closely enough at bat. i do not think will be in this position right now if we said selectively that led not say the government will have the right way to solve the problems.

let's create and in hand something that we know works for companies in cities and airlines. it provides the of gentility that we see in all appeared to be of gentility that we see in all other forms of financial distress from i think we would have alleviated the problem that you are having, to come up with $19 billion. we could have reached the barrier between the government solution and the court solution. i think it would have probably brought us to a better solution and one that i think would alleviate any obligation the taxpayers may have now or in the future. thank you.

>> i think the chairman. i have tried to stay mostly out to the financial part of this. i like to make a small point feder. i know much has been said about the various programs that will not go away as a result of "ending tarp." if you read looking for a pay for, a program that has been through hearing after hearing in my committee and a bipartisan basis is a program that has had a very hard time continuing to be important. it was important. it stabilized the market. we have been told that virtually the 30% requirement

that is in there. we had an opportunity to look at the program and trim some of the money. you can trimeter about taking tarp funds. -- trim it without taking tarp funds. there was 25 billion. because so little has been used by the program, you have a substantial amount of money that would be a legitimate paid for with previously appropriated funds into thousand eight that are access. i have a quandary question. it is something that has been

approved by the house that seemed very appropriate. you did the right thing. he said, why do not you work with us and see if we can come to their meetings on the details? we work in a good faith. yours works in good faith. we reached a of th26 pages of mt that was acceptable to house republicans and democrats and to the administration. it went to the senate. when asked the senate, what happened? cannot even find someone who said they did not like it.

>> i have searched every document. i have not found any mandate that i would be able to understand what happens in the senate. if you find well, i like to see it. we did get an agreement. >> nothing knowledgeable of the intricacies intricaciespay for predict industries -- not being knowledgeable of all the intricacies of pay for, i think you for helping me. he might talk with your members to seek it an actual fund and money could be used which would still leave a substantial amount

of money in the ham programp. >> i now recognize myself for five minutes. we have not done nearly enough to alleviate the stress of average citizens that are caused by these problems. we put in $4 billion to try to deal with it. the tarp has not ended by this program. there is no commitment to it. there is some fun of and get the money left from the i intend to more. people unemployed on not to be treated like this. maybe some of the money ought to be reprogrammed for something else.

i am sorry it is not made available. we did that get until just before we did it. i preferred what we did in the bill. i preferred asking goldman sachs and jpmorgan chase and all those others, hedge fund above to million dollars -- $10 million, to be assessed to the tune of $19 billion over two- years from t. people that have not shown any concern in context of what they make was some help drive up atm fees. no, not entirely this man a consumer bureau.

i much preferred what we do. i do not understand why some members on the republican side who are not here preferred what we are being talked about through levying a financial hit on these institutions. the fdic does hit the larger institutions and not because there is the cut on the $10 billion, but because on the initiative working with sheila bair where mandated the fdic to put a risk weighting in to the assessment. there is less risk of the institutions that will pay more. if it passes, small institutions will be advantaged. i regret that we are making the change. these are important considerations to get enough votes to pass this bill.

we have to do this. it is a very important bill. there is regulation of derivatives. mary schapiro of the sec is a strong supporter. mayor shapiro, elizabeth warren, and sheila bair are all strong supporters of this bill. there are a number of important things in the bill. a fiduciary requirement for municipal advisers said the we do not give the kind of problems we have all seen. all those are very important. i am prepared to make compromises. for those who worry about is getting too far, the conservative party prime

minister of canada said over the weekend that with this bill america takes the lead in financial regulation and the rest of the world will follow. on the tarp, what it says is this. i prefer the original way. what cbo is saying is this, money repaid to the tarp goes into the treasury and to have made a profit on the big part. what the cbo is saying is that if you spend the remaining on allocated tarp money, you will lose some of it. you will not get it all back. cbo is a wondrous institution. i am often puzzled by it. i do know that my colleagues have a tendency to love it when it agrees with us and not so much when it does not. that is where we are. given the importance of this bill, i hope that we can defend

it. the question is now concurring with the senate madeir. we concur the senate [unintelligible] [roll call vote] aye, present, aye, aye by proxy, aye, aye by rpoxy, aye. aye.

no. no. no. no. no. no. no. no. no. >> on their local, there are nine ayes, 6 nayes and one pree sent. >> i have a motion to reopen title 7. >> the determine from alabama moves to reopen title 7.

>> i think i voted that the end- users of derivatives would that have to raise additional capital. >> that means no. >> i will put the motion anywhere. it is not debatable to reopen in a detective. -- another title. i believe the business -- >> i was going to speak on the amendment. >> it is not debatable. the title is not opened. the conference is now concluded. we've read vote -- we will revote. coracle call the roll. indeed the clerk will call the roll. aye.

aye. aye. aye. aye by proxy. [laughter] aye. aye. aye. aye. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy.

aye by proxy. aye. aye by proxy. aye by proxy. no. no. no. no. no. no. no by proxy. no by proxy. no by proxy. no. no by proxy.

>> may we have the result? >> ayes are 20, nayes 11. >> i think the house chairman and the work to adopt this. aye. aye by proxy. aye by proxy. aye by proxy. aye by proxy. aye by proxy. no by proxy. no.

no. no. no. seven ayes, 5 naye.] the report is passed. ] i think you for the hospitality once again. i say that this conference is now adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> house-senate negotiators made changes to the financial regulation bills that the house will take of tomorrow. earlier, we spoke with a reporter on an update of the legislation. >> what did house and senate

negotiators change in the financial regulations bill? >> they change on how they can come plane for the legislation. last week, there is a 20 hour marathon session between negotiators. they proposed roughly an $18 billion assessment or fee on the bank industry. after some senate republicans balked at that, they replaced it. they are going to accelerate the finishing of the $750 billion tarp program and collect a more modest fee from banks through insurance corporations for the next 10 years or so burda . it should basically accomplished

the same thing. >> what happened behind the scenes between last week when the conference committee approved what they thought was going to be the final version and today when the committee needed to reconvene to change it? >> when you deal with in a big piece of legislation like this, you are a boy to have picked up. if that is part of the trauma. -- you are going to have hiccups. that is part of the drama. they did not feel comfortable after some of them started calling the $18 billion fee a bank tax. they raised objections to that. of course, it helps and said democrats to come back with new ideas today. >> who are a couple of the moderate senate republicans that you are talking about?

>> the two main centers, as susan collins and a libya's know. those of the three being targeted. -- and olympia snowe. those are the three being targeted. >> will democrat said the 60 votes? >> you always have to wait to the vote. i think folks generally feel fairly confident at this time that wwth this change, which they said collins and snowe were signing off on for the most part, lawmakers are not publicly endorsing it wholeheartedly. behind the scenes, a juror saying they felt confident this would get them. >> thank you for talking with us. >> have a good one.

>> on tomorrow mornings "washington journal" we will talk tabout energy legislation after that, republican congressman buck mckeon on a u.s. strategy in afghanistan d. after thatinennis -- that, dennis henigan. it is each morning at 7:00 a.m. eastern here on c-span. >> west virginia senator robert byrd served more than 50 years on the u.s. senate, lumber than anyone in history. he appears on c-span more than 1200 times. what are 1980 profile with the signature on the history of the senate. it is all online at the c-span video library.

it is washington your way. >> now of a patel war contracts are supervised. we will hear from the special inspector general for iraq restriction. this subcommittee hearing is just under two hours. >> we will come to order. i ask unanimous consent that only the chairman and covers this make opening orders. consent that the hearing record be kept open for five business days for that all members of the subcommittee may be allowed to submit a written

statement for the record. so ordered. good morning. my appall aeologies for being a late. we know that certainly it was unintended. i appreciate jeff for being here. all of you for showing up today and giving us your considerable expertise. i sadly report that i understand we'll have votes at about 10:30, so there will be an interruption on this. we'll try to make it as brief as possible and get back here for that. so today we continue our oversight on the united states government contracting in our conflicts overseas. we'll ask the important questions, who's getting the taxpayer money, and how are they using those funds once they get it? last week, this subcommittee held a hearing that examined the results of an investigation into afghanistan. that uncovered distressing details about how taxpayer money is funding corruption in afghanistan and how the contract is undermining united states

counterinsurgency strategy. equally troubling is the finding that the united states officials charged with oversees this contract had no visibility. in most cases, officials did not know who the subcontractors were, let alone who they employed, how they functioned, or where they spent their money. to give one example, 7 of the 8 prime contractors in the host nation either directly or indirectly, he provides security for the convoys. he claims to spend $1.5 million per month on ammunition. and he has attacked convoys that do not use his security services. still, no united states military officials have ever met with the commander. and despite the fact that he receives millions of dollars of taxpayer money, there have been no attempts to enforce the laws that fund his contractual relationship. it's unconscionable that the military does not have tighter

control. but the host nation trucking contract is not the only problem. this week's economists report that 570 nato contracts worth millions of dollars were issued in southern afghanistan, but nobody is sure to whom. in january, the special inspector general for iraq reconstruction, one of our witnesses here today, issued a report about a state department contract which noted that over $2.5 billion in u.s. funds were vulnerable to waste and fraud. in may, the inspector general for the united states issued an audit of his private security contractors in afghanistan which highlighted significant problems with contracts. it found that they do not have, and i quote again, reasonable assurance that private security contractors are reporting all serious security incidents as suitability qualifies and are authorized to operate in afghanistan. audits from the department of

the state, usaid and others have found problems in embassy construction, fuel delivery and educational outreach programs. the government accountability office, another of our witnesses here today, has reported that the agencies are not even able to accurately report the number of contract personnel working on united states contracts. just yesterday, the "wall street journal" reported that over $3 billion in cash has been flown out of afghanistan the last three years. that's $3 billion of cash on a plane flying out of afghanistan. officials believe that at least some of that money has been skimmed from united states contracts. the conflicts in iraq and afghanistan have changed the way the united states wages war. with more contractors than troops currently in both countries, the role that he's civilians play has become important. the changing role of contractors has challenged the agencies that employee them. thus far, the agencies have not risen to meet those challenges. congress has tried to impose

greater control over contingencies contractors and subcontractors including private security companies. the last three defense authorization acts include provisions aimed at strengthening oversight mechanisms and mandate more stringent controls on contractors. these new regulations have not been sufficient. we're here today, however, not to criticize what has or has not been done so far. we want to work in the spirit of constructive oversight. today we're asking what can be done to keep these problems from reoccurring. we have invited a panel of witnesses with expertise and experience in the area of contingency contracting. it's my hope that today we can discuss what we can do to increase visibility, oversight and accountability over the contractors and subcontractors who are now crucial to the success of our missions in iraq and afghanistan. as we learn from the host nation trucking investigation, the actions of the subcontractors on that contract may be undermining our strategy in the region.

with so much at stake, it's time to dig in and find solutions. i look forward to continuing that conversation today and with that, i'd like to recognize mr. flake for his opening statement. >> thank you. as the chairman said, given the report that was issued just a couple of weeks ago in the hearing held last week, this is very important. there is enough water under the bridge. we have enough time. with iraq and afghanistan and with these contracts in place to have some kind of history that we can look to and to see what we're doing wrong and what we can do better. i look forward to the testimony. >> with that, we'll introduce the witnesses for today's hearing. i'll introduce each of you here now and then we'll start again at the end of the interviews. mr. william solis is from the united states government accountability office where he's responsible for a wide range of

program audits and veilsevaluat. throughout his career at goa, mr. solis' work has included military readiness and training, weapon system effectiveness, housing and military doctrine. he's received numerous goa awards. mary ugonn is from the inspector general's office. she is a certified public accountant with 29 years of accounting experience. the last 26 of which have been with the inspector general. miss ugone publicly was recognized by the president of the united states as the 2007 recipient of the meritorious rank award. this award is one of the highest in the federal government service. she's also recipient of the inspector general distinguished service award and the secretary of defense exceptional service award and a member of the association of government

accountants and graduate of the federal executive institute. have i said your name properly? >> you have. >> thank you. i appreciate that. mr. stewart bowen jr. previously served as the inspector general for the provisional authority. his mission includes assuring visibility. under the previous administration, he served as the department assistant to the president, the staff secretary and the special assistant to the president and counsel. mr. bowen was a partner at a law firm and was also an intelligence officer in the united states air force, achieving the rank of captain. he holds a b.a. from the university of south. we welcome you back, sir. you've been with us before. mr. richard fontaine previously served as foreign policy advisor to senator john mccain for five years. during his tenure with senator

mccain, mr. fontaine worked on foreign policy legislation such as the 9/11 implement station report. he is a policy analyst in the asian affairs directory. prior to that, mr. fontaine worked with richard armitage. mr. fontaine holds a b.a. from tulane university. i want to thank all of you for being witnesses here today and for taking time out of your schedules. looks like i'll swear you in and we'll go down and vote. maybe we'll get one or two statements in before we head off. we're going to swear our witnesses in. please rise and raise your right hands. do you solemnly swear or affirm to tell the truth, the whole truth and nothing but the truth. thank you. the record will reflect that all of the witnesses answered in the affirmative.

as mr. bowen knows and the others know, your full statement is going to be entered into the record by consent of the committee members. we ask that you try to synops i >> chairman tierney, ranking member flake, members of the subcommittee, appreciate the opportunity to be here to discuss a number of issues related to the d.o.d.'s use of contractors to support contingency operations. the report the subcommittee issued in the hearing held last week focused a number of oversight challenges related to the host nation trucking contract providing support to the u.s. forces. the oversight issues associated with this contract highlight many of the oversight and long-standing challenges at our reports have addressed in the past. my statement today will focus on the challenges the department continues to face when it uses

contractors and contingencies like afghanistan. i'll discuss two steps the department needs to take to address these challenges in future operations to include the need for d.o.d. to evaluate its reliance on contractors and institutionally plan for their use. as you know, d.o.d. relies greatly on contractors to support its current operations. currently there are about 95,000 contractors in iraq supporting about -- or 95,000 contractors in iraq supporting about 90,000 troops. over 112,000 contract personnel in afghanistan supporting 94,000 troops. in addition, goa reported that d.o.d. had more than 40,000 contracts in place in fiscal year 2008 and for the first six months of 2009 to support operations in afghanistan. d.o.d. officials have stated that the department is likely to continue to rely on contractors to support future contingenciec. based on our ongoing audit work

in iraq and afghanistan, d.o.d. continues to face a number of challenges to fully integrate operattonal contract support within the department to include finalizing joint guidance for operational contract support as required by congress, identifying and planning for the use of contractors in support of ongoing operations and in d. d.o.d.'s planning for future contingencies, providing personnel to conduct oversight and management of contractors, training of non-acquisition personnel such as unit commanders and contracting officer representatives on how to work effectively with contractors and contingency operations. and lastly, ensuring that local and host country nationals have been properly screened and badged. since the mid-'90s, we have made numerous recommendations aimed at addressing these challenges. while d.o.d. has taken some actions in response to our recommendations, it's been slow to implement others. for example, d.o.d. continues to

face challenges in contract support for ongoing operations. recently officials from several battalions who had just returned from afghanistan told us when they arrived at their locations that were intended to be their combat outpost that they lacked housing, heating, laundry facilities, showers and food services. additionally, because these units were unaware that they'd have the responsibility, they did not plan for and allocation personnel to handle the extensive contract management and oversight duties associated with building and maintaining their combat outpost. as a result, these units had to assign military personnel away from their primary missions in order to handle these contract management duties. failure to plan for contractor support goes well beyond iraq and afghanistan. as we reported earlier this year, the department has made

limited progress in improving the roles of contractors. for example, d.o.d. guidance calls for the inclusion of the operational contract support annex in some operation plans. however, of the 89 plans that require such annexes, we found only four plans with these annexes had been approved and the annexes had been drafted for an additional 30 plans. d.o.d. continues to risk not understanding the extent to which the department will be relying on contractors to support combat operations, and, two, being unprepared to provide over sight of the contractor personnel because they have not been included in the planning process. let me just say quickly, d.o.d. has taken some steps to institution institutionalize contract support. in addition, they've issued a variety of contractor guidance. let me just close and say that in looking towards a future, what is needed is a cultural

change across d.o.d. that emphasizes the importance of contract support throughout all aspe aspects, including planning, training and personnel requirements. only when d.o.d. has established its future vision for the use and role of contractors supporting deployed forces and fully institutionalizes the concepts of operational contract support can it effectively address its long-term capability to oversee and manage those contractors. it is important that this change occur quickly while current operations keep a significant amount of attention focused on the use and role of contractors in the political will exists to effect such a change within d.o.d. failure to do so will likely result in the department continuing to confront the challenges it faces today in future contingencies. this concludes my statement. i'll be happy to answer any questions. >> thank you, mr. solis. miss ugone? >> chairman tierney, ranking

member flake and members of the subcommittee, thank you for the opportunity to appear on behalf of the inspector general to discuss contracting in combat zones. specifically, i will highlight a few key deficiencies in contingency contracting and discuss related ongoing actions to help prevent waste, fraud and abuse. since the early 1990s, we have identified contract management as a major challenge for the department to overcome. and the government accountability office has continued to identify this area as high-risk. the need for expediency in contingency operations such as in iraq and afghanistan can further increase risks. in may 2010, we issued our report, a framework for reform. the intent of the report was to provide a useful tool for contract managers in their efforts time prove contingency contracting practices. one of the most important areas

in contingency contracting is requirements definition. because the pace of contingency operations should compel us to get it right in the beginning. in particular, requirements need to be appropriately translated into contractor performance expectations and measures. in february 2010, we and our colleagues at the department of state inspector general office jointly reported that two task orders valued at $1 billion did not meet defense needs in developing the afghan national police because the contract did not allow for rapid changes to the requirements as the security situation in afghanistan changed. another important area is adequate administration of the contract. fundamental steps include having a quality assurance plan and assigning qualified contracting officer representatives. for example, a special operations forces support activity contracting officer did not assign a contracting officer

representative to 44 service task orders valued at $514 million. only after a test caused damage to a c-130 aircraft did officials discover that a contractor improperly installed a part that later cost $219,000 to fix. sufficient controls of the payment process to ensure that payments were proper is another important area in contingency contracting. for example, marine corps official s did not authorize ovr 9,500 patients totaling about $310 million. we found the marine corps officials made 32 duplicate payments totaling 2.5 milli$2.5. one vendor was paid over $3 million. although the examples i provided today involve the relationship between the department and prime contractors, the need for effective contract management oversight also exists when the

department, through its prime contractors, relies on subcontractors. subcontracting guidance applies to the phases of the contracting process. for example, during source selection, when required by the contracting officer, offers must demonstrate the responsibility of their proposed subcontractors. the contracting officer may also require consent to subcontract, to adequately protect the government because the type of subcontract, its complexity or value or because special surveillance is needed. additionally, the federal acquisition regulation emphasizes that government quality assurance on subcontracted supplies over services should only be performed when it is in the government's interest. ultimately, however, the prime contractor is responsible for delivering supplies or services that conform to the contract requirements. therefore, it is the prime

contractor's responsibility to ensure that a proposed subcontract is appropriate for the risks involved and is consistent with sound business judgment. there remains continuing concern about whether a prime contractor provides value to the contract when the subcontractor is performs most or all the tasks under the contract. in spanse to section 852 of the national defense authorization act for fiscal year 2007, the department of defense has implemented contract clauses providing the officer with the authority to recover excessive charges for contracts where the prime contractor or a subcontractor adds no value in accomplishing the work performed under the contract. the effectiveness of contractor support to expand u.s. operations in afghanistan and other contingency operations can be improved by applying lessons learned from contingency contracts already executed. among the steps that can be

taken to improve contingency contracting are define what is needed and how it can be measured. have both program and contracting personnel involved in implementing a well-documented oversight plan, and have required documentary evidence such as a receipt of goods and services to support proper payments. in closing, i'd like to add that the top priority of the office of the inspector general, department of defense, is to provide effective and meaningful oversight in southwest asia. we will continue to coordinate and integrate our efforts within the oversight community and i look forward to answering any questions you may have. thank you. >> thank you very much. mr. bowen? >> good morning, chairman tierney, ranking member flank. thank you for inviting me here to address the challenges of contracting in combat zones, specifically to address the issue of who are our subcontractors.

permit me to provide three premises that frame my remarks. first, the iraq experience underscores the truism that contracting in a war zone is uniquely challenging and vulnerable to fraud, waste and abuse. second, that fraud, waste and abuse will get worse unless a regime is implemented that balances the principle of effective financial stewardship with the goal of mission accomplishment. third, a weakly resourced contract corps, such as we've seen in iraq and afghanistan, will harm oversight and, as you pointed out, potentially undermine mission accomplishment. we' we've been studying the problems arising from iraq contracting for the last six years. we've issued 230 reports. that's what -- we've gotten into some of the subcontracting

issues. in those cases, we've seen that the primes don't frequently know who their subcontractors are either. to find out what knowledge the defense department had about their primes, about the subcontractors, and thus this hearing. two paramount lessons learned arise from our reporting that i think still need to be addressed to grapple with this issue. one, as we pointed out four years ago in our contracting lesson learned report, the -- the u.s. government should develop and implement a contingency federal acquisition requirement, set of regulations, that is specifically shaped and defined for contingency operations. two, as part of an overall reform, the recognize nishz that there's lack of unity of command and thus a lack of unity and effort and a new institution

should be established that grants contracting, personnel, i.t., all of the elements essential to success and that institution should be given responsibility. right now we have gsa, not really functioning. the stabilization at state has the personnel responsibilities, not really engaged in iraq at all. very limited in afghanistan. and d.o.d., meanwhile, is pushing forward with its significant stabilization entities. that reform, that challenge, that problem stands before the congress and the country to fix. finding out and understanding contract -- who our subcontractors are, who our contractors are in iraq and afghanistan should be studied through three lenses. in iraq, two policies shaped the overall contracting effort. the heavy use of contractors to begin with, unprecedented in the history of contingency

operations. in 2008, reaching upwards of 190,000 contractors in country. with a contracting court simply not sufficient, not capable of keeping track of it. thus, waste. the real issue in iraq. the real issue in afghanistan. severe waste, billions of dollars wasted needlessly because of poor quality assurance programs, which are intended to ensure there are quality control programs which primes are supposed to implement to cover subcontractors. didn't get done enough. as a result, this serious waste occurred. second, the movement towards using local contractors understandably to build capital, to -- to improve employment, but you -- but in iraq, we don't know who those contractors are. we don't have a database. it's difficult to track. there was waste and corruption that ensued. on the transparency front, i think that if the congress wants to know who our subcontractors are, amending the far is a good way to do it. right now, the only way that --

that the contracts that chairman towns requested from d.o.d. will reveal who the subcontractors are, if the terms of the contract required it. however, if you so chose, you could amend the law to -- to require a minimal disclosure of subcontracting. i think that's a step in the right direction towards transparency. on the accountability front, rebuilding the contracting corps is an essential element to ensuring not just the oversight of primes but the oversight of subcontractors. so in summary, i think there are four recommendations that we put forward for the committee and for the congress to consider. implement the contingency and federal acquisition regulation and develop the u.s. office for contingency operations to manage these -- these methods. this is new for protecting our national security interest abroad. second, reexamine the heavy use of contractors in contingencies and explore whether some

functions are, in fact, being incorrectly outsourced. third, rebuild the contracting corps. it's ongoing at d.o.d., but i think it's a governmentwide issue. when you have 190,000 contractors, you've got to have a contracting corps that's capable. we don't have it today. and finally, amend the far as you see fit to give you the transparency, the information you need and want about who our subcontractors are. with that, mr. chairman, and members, i look forward to your questions. >> thank you very much. mr. fontaine. >> thank you very much for granting me the opportunity to testify today. i'm honored to take part in this hearing. my testimony today is based on a report called "contracting and conflicts: the path to reform." in this report, i discuss possible solutions to many of the problems that have plagued

the contracting process. the entire report is available for download on our website. our report proceeds from the realization that when our nation goes to war, contractors go it. the invasion of afghanistan together with the march 2003 invasion of iraq saw an increase in the size and scope of contracted support on the battlefield that is unprecedented. but the system in which this contracting takes place has not caught up with the new reality. as america's dependence on contractors is likely to continue, the need for reform is pressing. my written testimony details many recommendations we've made to move down the path to reform. i'd like to highlight a few that are particularly important. first, expand the workforce. as the volume and scale of contracts is exploding in recent years, the number of government workers qualified to oversee them has remained stable or even fallen. it's critical to grow the workforce both in washington and

overseas. only by expanding the quantity and quality of the government's human infrastructure will the majority of other necessary reforms be possible. second, increase transparency and scrutiny. the post invasion reconstruction environments in iraq and afghanistan represent the largest markets for private contracting firms, which has led to inconsistent data. we should establish uniform standards across agencies and contract type for consistency and consolidation of data. they should improve the transparency of subcontractors and establish a permanent inspector general and include clauses in contracts that require firms to enforce rules that impact the overall u.s. mission. third, establish a coordination mechanism within the executive branch. the approach to contingency contracting remains fragments. we propose establishing a formal but relatively simple mecnch in which state, d.o.d. and usaid

would focus on contingency contracting and then ensure that these individuals meet on a regular business in order to harmonize policies and standards. fourth, deal better with the military implications. the unprecedented number of private contractors on the battlefield and the vast scope of their activities put dilemmas for the u.s. military. the department of defense needs to give much more strategic thought to the role that private contractors play. they should consult with contractors during the military's mission planning process. include the roles of contractors in predeployment training and have military education courses. fifth, clarify laws and regulations. the legal framework governing expeditionary contractors in wartime is complicated. it features overlapping jurisdictions and it's ambiguous. the department of defense together with the department of justice should clarify how the various laws that apply to

contractors -- we believe that congress should amend the military jurisdiction act to cover all expeditionary contractors and streamline acquisition regulations that govern u.s. service contracting in hostile environments. sixth and finally, resolve the inherently governmental conundrum. u.s. laws law aimed to protect the core functions of government by prohibiting anyone but government employees from providing those tasks. the government should define those areas in which there is some consensus and move toward a core competency approach. such an approach would focus on the functions the u.s. government should possess and maintain rather than debate internally over which are inherently governmental. i would note that the u.s. government and its contract employees have been thrust together as partners in a shared endeavor. the scale, cost and duration of which have taken nearly all observers by surprise.

the reality is that america's reliance on practice contractors is not likely to fade and it's time for the united states to adapt. as a result, the government, the military, the contracting community and the american people will benefit from sweeping reform of the contracting system, reform that ensures the private sector's role. thank you very much, and i look forward to your questions. >> thank you, mr. fontaine. now for the continuation of that bad news i spoke about, i think it's more prudent if we break no and go and vote. there are only two votes. hopefully we'll be back relatively soon. i'd say certainly by about five minutes of 11:00. so if you want to get yourself a cup of coffee, relax a little bit, my apologies and we'll be back. we'll be adjoined until 11:00.

thank you for your patience on that. we had one more vote that had been anticipated. it took a little longer, but we're happy that you're all back with us. we're going to start asking some questions, which i'll kick off. i want to ask about the basic premise of this whole operation here. everybody seems to be testifying on the notion that we've accepted the premise that private contracting and

subcontracting is here to stay on contingency operations. yet every one of you cites numerous problems with oversight, with management, personnel, integrati of dethe planling, the command structure, liability, responsibility, control over individuals for whom we're going toet the blame, whatever they do, even though they may not be technically in our state department or department of defense. given all of those difficulties and separating out the state and usaid part of it right now, starting with the department of defense, why haven't we giving more consideration to the notion of not having contractors and subcontractors in our military operations where we already have established clear lines of responsibility for those in the military, clear lines of management, clear lines of accountability. it seems to me that if we just define military operations as inherently governmental because

the military operations in the name of the united states under our flag overseasthat that wld remiededy a lot of these problems. mr. solis? >> i'll take a first stab at it. ithink what we've tried to say is that we're not sayin that contractors should be used one way or the other. i think we try to say that from what we understand from the department in military operations that it's likely that they are going to be part of it. so we're not saying that they are. that being said, going back to what i mentioned in our statement, there needs to be a fundamental look at the requirements for contracting if, in fact, you want to do contracting. i don't think we're trying to say that you will use contracting, but if that's what you are going to do in terms of your military operations, you to plan that up front. you have to look and say, are we going to contract for certain things? not just on the logistical side, that we are using contractors on the intel side and network operations and a number of other things.

we are using them as linguists. everywhere i go, military members are saying i think we've gone too far. but there needs to be this fundamental look-see at the beginning to see if we are going to use them and if we are, we need to put the proper controls in place. >> i agree with you there. when i look at you talking about being on top of this issue since the 1990s and advising everybody to look at these contracts and moving forward and basically it's been blown off. i mean, here we are 20 years later and you've got a little bit of complans with some of the recommendations and a whole lot of non-compliance. miss ugone? >> i think my colleagues here have raised the issue of the inherently governmental function issue, which is -- i believe that policy definitions have been proposed of that. the issue is how closely relateicide it to the inherently governmental function? and should these critical capabilities be insourced?

i believe there was legislation passed in the last couple of years that requires the military departments to take a look at their contracted-out capabilities to see whether or not any of them should actually be insourced, wich is brought back in house. and that's one way in which the department can analyze that particular situation. i think there's already legislation out there that -- >> there is. legislation is there. the compliance isn't. that's the problem. again, the question is back to when did war ever become something that wasn't inherently governmental? in all of the things that go with it. when iee recommendations here, you know, trying to incorporate in and integrate into the command chain contractors so that they're more involved in the planning and the operations, if you're going to do that, you might as well have them on your payroll. mr. bowen? >> mr. chairman, you say when did that happen. i think the time is the late 1980s. and essentially the support.

fuel, food of troops in the field was outsourced. and we've spent now in iraq in excess of $35 billion in -- in that -- in those three areas. it's been an incrementalism since the late 1980s. what can be covered? it's a continuing question in every conflict. and the answer is always, a little bit more. >> has anybody looked at what did we do in world war ii, what did we do in the korean conflict? mr. fontaine? what a segue, huh? >> in our report, we have histical section that looks back, actually, all the way to george washington. and contractors in some way, shape, or form have played a role in all of our conflicts ing back that far. there are thousands of contractors working in vietnam and korea. the condition changbig change h

dependence that the u.s. has had on what they've done. in vietnam, you had a large number of contractors working on construction projects in vietnam. and that obviously is less controversial in terms of what contractors do. you know, now we -- in the current wars we've had contractors doing interrogation, private security operations, weapons maintenance, according to report even, you know, maintaining drone operations, those sort of things, which are much more controversial. that's the big change that's happened over the years, the scope of activities the contractors have begun to carry out and because we have, you know, upwards of 200,0 contractors now in iraq and afghanistan, if you pulled those out of the operation or tried to federalize them all, it would be very difficult to do. >> and i wonder how easy it would be to be over there in these conflicts if there were 200,000 people in the united states in combat has opposed to 90,000 in one place with 110,000 contractors, sort of off the books. >> well, this is another -- i mean, i think this is another

aspect of it, the political cost goes down to the -- to the degree that contracting support goes up. because, you know, we always mourn the losses of american service people who are killed. but contractors die and are hurt and they barely register. so there's a reduction in the political cost of these operations. but i think at the same time, unless the united states has a very significant redtion in its international mmitments, which personally i think is relatively unlikely, at least in the near to midterm, we will probably continue to rely with our current structure on contractors to do the work that our military is not big enough to carry out on its own. >> thank you. mr. flake? >> let me just follow on that team if i could. we -- the report that was issued with record to the war lord inc., this is one that -- it was mentioned before by mr. solis that you take into account

efficiency and whether or not it aids our policy, our overall policy goals. this is onehere when you have local contractors with the trucking contract, i think it's undoubtedly the most efficient way to move goods between military bases in afghanistan. but when we find out that a significant portion of the money that's -- that is used to pay those contracts is going for protection money to some very unsavory characters, some of whom, very tight with the taliban or are contracting with the taliban for this protection, that certainly runs counter to our policy, our counterinsurgency policy, which calls for one source of authority, that being the afghan government, and no parallel authority structures there that were in this case not only tolerating, we're building up these militias and war lords and whatnot. how do we reconcile that?

it kind of goes back to what the chairman was talking about and where, you know, the political costs -- certainly, if we -- if we did what the soviets did, use their force structure to guard the supply lines, according to this report, it s 75% of their force structure. that would require, you know, doubling of our number of troops aand wouldn't be very efficient and we'd have certainly more casualties. but it may be the the only way n effective counterinsurgency policy as we've defined it. how do we reconcile that or can we reconcile that? >> the policy issue is using financial resources to pacify a region and it was certainly an expedient process ad hoc keeping

the trucking route safe. the anbar awening spent in excess of $450 million of commander's emergency response program money to pacify anbar province and regional areas. similar policy issues, different approaches toow well thought out, how well structured the execution of the two programs was. in afghanistan, the policy execution was essentially expedient and almost outsourced. in iraq was carefully tnsitioned ashe maintenance. now borne financially by the iraqi government. >> how does this look in terms of the use of contractors? >> obviously, in any war funneling money to your enemy is

not a good idea. at some point there may need to be a fundamental choice made whether to proceed, whether the effects are mitigated through oversight, to proceed in fashion where we are willing to trade money in order to have a pacified area which our supply lines can travel, knowing some of that money can go to our enemy, or whether we are willing to tolerate our casualties or disruption to our supply lines. that is probably a fundamental choice. when it comes to counterinsurgency, not only do they have all the problems you just described when it comes to aiding our enemies, reducing government legitimacy, giving them more opportunity to attack or not attack, there is a strategic communications issue to this we are supposed to be on the side of the good guys. as word gets out that we are sort of willingly or knowingly providing money that ends up in the hands of thetaliban, i wonder if that promotes a sense

that the united states is not in this for the long term in order to actually see the government succeed rather than trying to build a short-term expediency. >> if there is no value added from having the prime contractor or the subcontractors that we have the authority to pullback some of the funds used for that, how often is that utilized? >> we haven't done work in the area on the pass through. that was legislation enacted in fy-2007. one of the things it focuses on is the subcontractor level. we do han to do work based on the contingency contracting framework for reform. we identified where primes had problems. when we look at the primes that are idiq contracts. if there is issues, are issues

related to pass-through as well as her issues related to subcontractor responsibility, as well. >> you are not aware of any instances where we actually pulled that funds? >> no. i'm not aware of anynstances where we pulled excess costs. >> thank you. >> thank you, mr. chair. last week we found out that in the course of investigating the host nation trucking contract that military were relying on reports from subcontractors that were actually driving the trucks and providing security for the convoys and there was strong evidence these subcontctors were paying off the taliban. this is a very distressing situation. what areas of oversight are appropriate for dod to leave up

to the prime contractor and what areas should they take a more direct role and how can we prevent this corruption from occurring? >> i think one of the things prayerinfor this hearing, it became quite apparent that the deral acquisition regulation has not kept up with subcontract management. we jst took one contract out of here, idiq contract with five prime contractors. there are 200 subcontractors under that prichlt if you take a look at federal acquisition regulation, there are provisions, but as far as subcontract management, i don't think it kept up with the level of subcontractor performance that's required under these primes. i think there needs to be a look at theedal acquisition regulation with respect to subcontract management.

>> are there not guideline for this? >> there are and there is and i talked about a little bit in my opening statement. there is the consent to subcontract which is if the contracting officer requires a prime to provide information on their subs in order for the contracting officer to consent to subcontract, there is some insight into subcontractor responsibility. if the contracting officer does not require that, then you're not going to have the insight. the provisions currently allows a lot of leeway to the contracting officer. >> what would change to it have this more stringent oversight of the subcontractor? >> i didn't hear the question. >> what could -- what would it take to change it so could you

have this change? >> one of the provisions -- let me take the situation with the war lord situation. the contracting officer can, under the current provisions signate subcontracts in that situation as something that requires special surveillance or special oversight. it does allow to do that. could you say i need to subcontract with these primes and get insight into your subcontractors and i could establish perhaps a special surveillance program for those particular subcontractors. there are some provisions, but it's up to the contracting officer. to determine whether those provisions are invoked. if there are other additional requirements that have to do with the contract purchasing system. it gets more details as to when

you have to get a consent to subcontract from the contracting officer. >> i want to ask about the culture. it was talked about the ability to institutionalize contract support by accepting contractors as an integral part of the total force. i also note you had had several recommendations but the dod has been slow to implement many of the recommendations. would could change this culture? >> i think one of the things again, and i think the joint staff and this was alluded to last week, there was a joint staff study to look at the relines of contractors in iraq. that begins the process of looking how reliant the dod you

is not only in iraq but in operations in terms of reliance. also the testimony here. >> when you look at future operations, there are requirements to look for contract requirements for future operations. that has to be done rigorously and on time. unless the department does that kind of thing, we are going to be in the same situation talking about another contract the next time. the only other thing i would offer is in the current version of the defense authorization bill that the senate just passed, they made some changes to the requirement for looking at contractor requirements in the defense bill. it's going to bring that strategic look up to it at that point.

i think there are basic problems in terms again. lessons learned, background reenings. i think those things, we are on record with some of the recommendations to make changes to that for whatever reason the department and has not acted upon those in a timely manner. we are trying to pursue some of those. the fundamental pace is i've got to look at your reliance on contractors before you start making other adjustments. >> thank you, yield back. >> mr. duncan, you' recognized five minutes. >> thank you very much, mr. chairman. thank you for holding another hearing and trying to call attention to all the problems, all the waste, fraud and abuse. one scandal after another that's gone on for many years.

throughout all this time we had more contractors than subcontractors than we had soldiers in these areas. i heard mr. fontaine say a moment ago the use of contracto by the military has gone on since the founding of the country. there's never been the ridiculous mark-ups, the almost excessive, obscene profiteering, the rip-offs of the taxpayers that have gone on to the extent they have gonon in iraq and afghanistan. these wars have been far more about money than they have been about any real threat to this nation. it's really very sad about

what's gone on. there is no real way to correct when you have prime companies dealing with each other. things are done at a fourth or third or half the cost that you have when you have the federal government involved. has been the worst and the most expensive of any of the federal contracting that's gone on by our government. that's all we have to say. thank you very much for giving me this time. >> thank you, mr. duncan. >> thank you, mr. chairman. thank you for holding this hearing. mr. bowen, good to see you

again. we've had a long history over the iraq reconstruction model. i've been to iraq 12 times working with you to try to tighten up the situation there. we started at a very low basis. what trouble mees when i more often visit afghanistan, i don't see that the lessons learned in iraq are being used. it distresses me greatly when i went down to try to meet with a couple of war lords down there on the afghanistan/pakistani border. they ended up shutting down the pass there and shut off the trucking because they didn't want me down that area asking questions.

even the modest and painful gains achieved in iraq and afghanistan, i'm wondering, mr. bowen because you are the inspector general for iraq reconstruction, you're the one who was the point person for us. can you point -- i know you helped the inspector general for afghan reconstruction? i know you helped him file some reports. >> that's right. >> the reports are, at least the ones i've seen and asked for, they are, well, very poor, i would say, in my estimation going into afghanistan and asking for a progress report and where we are, even if not just a status report, even if there is no progress to report, tell us where we are. that information has been very poor, not very informative.

when i compare it to the information i get from you and your office in iraq, i havelow confidence for the inspector general for afghan reconstruction. it may be because of the environment there. it may be my expectations are too high. i wonder if you could share lessons learned in iraq. >> almost exactly two years ago we had a coloquy inhis room

about the police training camp that never got completed. i point that out to say this is a continuing and enduring problem. that is enshurg the taxpayer interests are protect while mission goals are achieved. one doesn't trump the other. the shortfalls you saw in afghanistan, the shortfalls experienced today in both countries is the lack of transparency, no required report as we heard today regarding subcontractors. lack of effective accountability, insufficient oversight presence in country. you went outside the wire, we've been outside the wire lot in iraq. we've been together, you and i and sometimes when our inspectors have visited sites frequently, we re the first americans they've seen in a long me. so the quality assurance

programs being done outside the wire are not sufficient to protect those taxpayers' interests, not with standing importance of the mission goals. whattlessons should be applied? two that are in my statement. one, the contingency federal acquisition regulation we talked about report, recommended four years ago. i think these settings as you point out are uniquely difficult and uniquely susceptible to fraud, waste and abuse, and therefore, special, focused contracting regulation should be developed for all ages to use in theater. what most don't realize, there are multiple visits of the f.a.r. at work that. creates problem for contractors and creates problems for contract managements and causes waste which is ultimately the --

where taxpayer interest is in fraud and waste. it shouldn't be dependent on personality. it ought to be driven by structure and that should be an office that would bring contracting, i.t., personnel, bring planning, oversight, execution under one roof. >> let me continue on that line. your testimony recalled december 2009 trip to afghanistan you took. you were told by members of the defense contract management agency that they require d experts and oversight.

they plan to staff those positions with contractors. what are we doing? is this wise strategy? you're going to hire contractors to oversee contractors? >> i'm not saying it's the way it should be done. i think it's the lack of planning for the use of contractors. you have to look at what your requirements are going to be. if are going to be doing more contracting or require people who have to have technical backgrounds, particularly in the constructions trades, engineering trades, is this where we want to be? i think ultimately this is what they may have had to do. we have no choice. >> you had this issue since the late '80s. it seems total non-responsiveness on that.

they are going to assign contract representatives related to health and safety, food surf yes, sir and power generation, leaving other services with no contract oversight. how smart is that? >> my understanding they were categorizing high, medium risk. it's not they weren't going to have oversight, they were going to have less oversight. they were not going to review those contracts as often. it was maybe once a quarter or shorter, longer periods of time. it does create risk. looking at these contracts and things, i've got to continue to look at, is is going to increase my risk? is going to -- there's got to be a cntinual review. cane not just say i'm not going

to do this ever agai you're just going to set yourself up for problems. >>hey talked about the experts. do you have any information how the department of defense is progressing employing a cadre of experts? >> i don't have a macroview, much more selective view depending on the contract. the international narcotics law enforcement contract we looked at, that was $1 billion on equipment and training afghan national police. we were told by the command that they stood up a contracting officer representative oversight structure just for that one contract. but we do have concerns about contingency contracting. particularly using our framework for reform.

the area that is the area that is problematic is getting the contract right, monitoring and paying. we have concerns about those same issues again in afghanistan. that's one of the things that we want to watch as the money flows in to equip and train the afghan national police and the security forces. >> i think you made that point well. to little oversight, too little people professionized in managing the contracts. we have people in one case so we contracted out to people to oversee the contract. that's how absurd it gets. >> i think the key is, aerogoing to get it wrong at the end if you don't get it right at the beginning. if you don't translate those

requirements correctly and you don't plan the acquisitions and you don't have a strategy for how you're going to spend the money, then you're going to have a problem. definitely. >> i'm beginning to think we can't rely on the department of defense to do this any longer. maybe they shod put a s.w.a.t. team togeer to get these things in place and shove it on them. >> what best practices can we look at is this alkaloid all given the scale of what we're doing at dod -- is as applicable at all given the scale of what we're doing at a date? dod side it. can't really answer your question in terms of best practices.

obviously, i think the department knows things that it has to do. again, it hasn't always translated into doing those best practices. again, things like doing lessons learned as stuart mentioned, i think translating that over from iraq to afghanistan, whether it's reconstrtion or military operations will use the contractors. i think the department is aware of the kinds of things that it needs to do. i think dod is aware of the things that it needs to do. p think it's a matter of implementation at this point. >> that is incumbent on us then to -- we can rewrite the regs, but nothing has seemed to work

to prompt them other an simply withholding funds. then you get into policy issues bigger than all of this. >> there is obviously a lot of guidance out there already. we can raise this to a more strategic level in plans of operations and military missions. that's one of the first things that's got to be done. i ink holding folks accountable and feet to the fire in terms of implementing these regulations is the next step. there is an awful lot of guidance. the other thing i would mention is we talk about this in a contracting sense. i think the other entity within dod that's got to step up to the plate is personnel and readiness aside. i think it is a four structure issue. again, how we look at iraq or afghanist, we have nearly a couple hundred thousand personnel, both contractors and military members doing the

mission. is that where we want to be? is that how we want to do these things? the kinds of things contractors doing today are things we want to do for future operations? that's where it's also not just the contracting side. i agree with everything my colleagues have said about things like requirements and planning, but i also thi it's got to be a four-structure issue and look and see and where we want to be with personnel, both contractors and military members. >> what are your current thoughts on having an inspector general for contingency and how would that improve our ability to oversee progress or lack of progress from vaous agencies? >> having a special standing inspector general would simply ensure the oversight was well prepared in advance of any

operation beginning. in both iraq and afghanistan. adequate oversight was not created until adequate operations were under way. in afghanistan's case, seven years after it was und way. the dam has broken. the disaster was unfolding. it's difficult to make as significant difference as we were able to make in iraq. the fits within the gist of this hearing the need for greater accountability together with more transparency. >> mr. fontaine, can you compare for us the competencies involved when the military oversees its own personnel versus how well they do in overseeing the conduct of contractors? >> well, this is an ongoing problem related to the laws, regulations, internal command

structures that the military has versus what the contractors have. the contractors at the end of the day are responsible for the terms of their contract. nonfulfillment of the contract has certain penalties, but not the same penalties that, for example, military personnel have if they don't obey an order where they can be court-martialed. the discipline and the command and control procedures on the mill side are much clearer and crisper on the military side rather than the contracting side. the contracting side there has been increingly an attempt to write into the contracts themselves some of these. contractors before were not subject to the uniform code of military justice. they are now subject to some provisions of the ucmj. contractors beforeere not subject to fragmentary orders and other orders from commanders in the field. there's ba