in 2007 he joined prominent business, labor, and public policy leaders as a founding member of the better health care together a coalition which urges fundamental reform of the american health-care system. he is on the board of directors of the detroit regional chamber, detroit medical center, the committee for economic development, and the university of detroit. he also serves on the detroit board of directors for the federal reserve bank of chicago. to his left is anti stern, -- in the stern -- andy stern, former president of the 2.2 million member service employees international union of the fgcu. -- seiu. it is the fastest-growing union in north america. they have but the trend and -- but the trend -- bucked the trend through a national

campaign, grew by more than 1.2 million workers, turning traditionally underpaid service work into jobs that can help support a family and lived up a community. as a labor leader, he is a leading voice on major issues new facing in confronting american workers. he was named in 2010 as the presidential appointee for the national commission on fiscal responsibility and reform. last but not least is laura tyson. she is a professor of global management at the university of california berkeley. prior to that she was the dean at the london business school from 2002 to 2006 and dean from 1998 to 2001. she is a member of the president's council on jobs and competitiveness and a member of the president's economic recovery advisory board. she served in the clinton in ministration and was chair of the council of economic advisers from 1993 to 1995, and the president's national economic adviser from 1995 to 1996. she is senior writer at

mckinsey institute. limit turned it over to zanny. >> it is a pleasure to be here and to moderate such a distinguished panel. you have an unfailing ability to come up with catchy phrases. the u.s. needs high skill, high sure, high speed. we have a lot to cover and not very much time. there's so much to talk about. i am going to start with andy. from your perspective, how you react to this report? does it accurately depict the challenge facing american workers? >> this report is an important road map and it comes at a pretty important historical moment.

i like to say this is not our fathers or grandfathers economy. i think something revolutionary is happening differently. i believe history will say this is the third economic revolution in world history. as opposed to what 300-year transition, we are having a 30- year massive transformation with an enormous amount of creative destruction. what we now know is the economy works differently. the markets work differently. business cycles work differently. we are not going into the future looking in the rearview mirror. it is a unique moment in history and we need to think about this fundamental point. market fundamentalism is no longer a way forward. strict government intervention is not a way forward. the third economic revolution, teams have plans. germany has a plan.

china has a plan. singapore has a plan. the usa has no plan. the road map is an attempt to try to make a plan at a unique moment in history. if we love this country like i do, we need leadership and the plan, and this is a good place to start. >> i was struck with the did difference between what austan was saying earlier in the discussion and the tone of this report. the conventional wisdom is that when the growth comes, the jobs will come. the growth may come, but that jobs may not necessarily come, that is the tone in this report. we may talk about a jobless recovery or not, but has something fundamental changed? >> there is not the consistency that you may see of her side.

the report lays out three scenarios, high-growth, low growth, and medium grit. underlined thoses about the growth of the economy and demand and household and come and consumption and investment. i do not think it is either/or. we manage to get a high growth economy, we will see jobs of these numbers in these sectors. fashion is, what does that require from the skill base so that those jobs can be filled? i see it as supply and demand working together. i do think that austan raised a couple of things which are not explicit in this report but they are very connected to it. he talked about this is a time where we are switching from government support for an economy in free fall, and ending -- handing it back to the

private sector. what can the private sector due to stimulate demand and create new jobs squarish remark to what does and create new jobs? austan also said that we have to think about as we hand as of to the private sector, we can see certain ways that the government can be extremely helpful here. there could be a regulatory thing, and providing the skills the workforce needs, building a supportive infrastructure. the notion that we're going to change from public to private, not so depended on consumption, and then change what government policy can do to help the private sector, that brings it all together. i think of what the report says and what austan says complement each other. >> the report emphasizes the

skills mismatch and whether the work force has the skills that the bill that types of jobs that will come. you are a fortune 500 ceo. you see this bill mismatch in your day-to-day activities? is that the big problem that mckinsey rightfully points out? >> the employers and employees in other companies, skill mismatches extensive and more widespread than in the popular literature. we think of it in engineering, and it is there. we only have one candidate for about every three jobs we have available in the engineering space. but that hides the fact that in the skills trade area and the technicians of all sorts and everything from electricians to plumbers, x-ray technicians, there is a tremendous shortage.

we had kelly used we have tens of thousands of open orders available in those zones that you cannot find people for. his skills mismatch is huge and i think we are doing very little in terms of either national education policy or down to very specific policies at the state levels to guide individuals into the areas where jobs are currently available or are going to be available. and the time it takes to retrain people to read-skilled individuals, it is too long. we have to get faster at re- skilling individuals. that is just bad social policy. >> we are going to spend a lot of time talking about the shortcomings in training. but the second component of thinking about how you match

demand and supply in the future, where will the demand be? one of the interesting points that this report makes in contrast austan goolsbee, the job growth will be there in manufacturing. austan seems to thing much more optimistically about that. you have thought about manufacturing. what is your take on this? there really is a tension here. what is the prospects of a manufacturing job growth? >> i think the report is right and austan is wrong, and a portion of it. i think there may be aired manufacturing renaissance in the sense that output growth in manufacturing will be strong word going forward. it never was that bad in the past 20 years or going back, but there are a lot of strong manufacturing companies, a lot of innovation going on in the united states, and on the out of

woodside, yes, there likely will be a manufacturing renaissance. it is also the case that some of the economics -- a slide that was shown -- is also true for some manufacturing activities. companies are finding that having a spot -- a supply chain spread out over the world is more difficult to deal with. maybe the savings they get from doing that are not as great. some companies are bringing production back to the u.s.. i think the skills issue is important on my. we will talk more about that. it the number of jobs in manufacturing depends on how successful we are increasing people with the skills that are attracted to employers who then go and provide more skills to them. a lot of companies will do their own training, but they want to

have workers that they can train. one of the other reasons i think you can be somewhat optimistic about manufacturing is the value of the dollar. in my own work, that is the main driver whether we have a big trade balance -- deficit or something closer to balance. on the assumption that the economy recovers and we get back toward unemployment, will we have an unbalanced economy with lots of trade deficit or a more balanced? a lot of that depends on the policies we follow, whether we have enough domestic spat -- saving, whether the value of the dollar is up. that makes the u.s. competitive? why do we not get the jobs? the numbers do not add up. i thought that they were going to. that is something i learned working with the mckinsey group.

if you look at the likely growth of output, america is still buying a lot of things, and we think that exports made it better going forward, so what we get something closer to trade balance 10 years from their rather than a huge trade deficit, that will add to output growth. so how much is productivity going to rise? it could be very slow. we could get a surprise there. if you look historically what productivity has been the in manufacturing and match that with what it is likely to be the output growth, and you do not get in the net job creation over the next 10 years. it is very hard to make those numbers, and plenty of adverse and there is. we do not deal with a saving in balance, we still have a big trade deficit, productivity turns out to be faster than we

thought it was one to be, and you would continue to lose jobs in manufacturing. much as i will like to agree with you, austin, i think it is hard to get the numbers to come out that way. >> now you are more depressed. >> this is a 10-year view, and there is a short-term view. manufacturing has been adding jobs in the past few months and could continue to for the next few months. let's all hope that it does. how from austan's perspective, it does seem quite promising. martin is talking more about the fundamentals. that is part of that tension. >> let's look at the 10-year horizon. austan is clearly right in the very short-term, but let's stick with the horizon. [laughter]

andy told us this was a revolutionary moment. we now have carl tell us that they're not enough people to fill the positions that he wants. can we move to some solutions and something positive? what can we do to change what we agree is a grim picture? let's start with you since you are involved with the report. can we actually turn this around? you are known for your optimism and some solutions let out, but build on that, particularly the skill mismatches mentioned earlier. i think that is a fundamental issue. what actually can be done? >> i do think that we can accomplish the high scenario and get back. i agree with what in the said, there are some fundamental differences.

-- andy said, there are some fundamental difference. we need innovation in skill development and education itself. i think that is absolutely positive -- possible. at the margins, there are tremendous infantas -- advances. in darpa, they have an adaptive learning grossman -- program that in trained support people in a matter of weeks, normally done in a two-year program, and does it extremely effectively. does the education sector have the least r&d of any sector of the economy at a time when we need the most innovation in that sector? that is a tremendously important factor for the economy. what would you do differently?

throughout the education system we measure progress through the seat time. we should be measuring it by competencies'. what do you know how to do? if we measured that, we create a whole sent rigid set of incentives for people to learn faster and better and in different ways. some in the classroom, some on the job, some through apprenticeships. if you create that right policy structure and let innovators go after it, there can be a parallel evolution in learning. -- a revolution in learning. they're always coming even the best educational institutions said they do it. one really interesting development in the last week, i do not know if you saw some of the manufacturing institute teamed up with skills for america's future, a business and

government and educational partnership, training 500,000 people in those skills gaps in manufacturing. a couple of the foundations assisted. they defined the skill latter so that all manufacturers could agree with that. you talk about a lack of mobility with the work force coming to go through community colleges, you can learn on the job, and then you can and still those skills. i think there are a lot of solutions there and there are a number of solutions that can get you the results that you want. >> i just been some time looking at the history of the u.s. training program, a lot of grim reading, i think.

they're not been that successful. the u.s. spends weigh less than virtually any other country on training, that which it spends is not well-organized or efficient. that is my personal reading of it. one key part of getting to this much better outcome is to improve training retraining. and one way is to start in an environment of fiscal entrenchment, where there are not a lot extra resources on the table. how do we go about doing that or the margin and it is a tough one. -- how do we go about doing that? >> it is a tough one. the on forces cannot outsource their jobs. who do not have any mercenaries, so it has to be done.

it is an american activity, number one. and they cannot pay huge salaries to people to do the job. so they are forced -- they have the necessity, they have to take the recruits that they have been trained them to give them the skills that they need to operate the high-tech systems. so they have found ways to do it. this necessity, to use the cliche, has been the mother of invention. somehow we have to change the incentives within the private sector here in the u.s. so that there is more willingness for business and may be the public sector as well, not necessarily at the federal level, but community colleges, states and localities, to figure out how to provide the skills that businesses need so that they can take those people and then give them additional skills of what that particular firmer company

wants. and this will certainly not be easy. if elected the record and find some signs of hope. there are some community colleges that are really good at what they do. one of these samples was shown earlier from the report, delta airlines and other companies partnering with community colleges to create training programs, so that their students can come out and work for the company. that is the kind of model that we need to do. how does it do? how do we do it chris markair we are at i am very pleased that we are here with his -- we are here at ced. i am very pleased that we're here with this crew. we need to get a handle on what it is that students and unemployed workers, what skills

they need to have, and how it can be done cheaply, but a fairly quick programming. and then, can we work with community colleges, not letting the bad ones get in the way, but trying to find those common grounds both on the education side and on the private sector side, creating these short-term skill enhancement programs that make people better able to fit into these jobs. i do not pretend that is an easy task, but if we are in this economic crisis, and if it is really true that we have the skill shortages, should that not give some urgency around doing something like this? >> carl, what is your take on a from the private sector perspective? when you finish the situation would not fill the position is that your name? do you think that martin is on

the right track? >> several days. we have a very schizophrenic set up policies. we do not have an education system that produces the workers that we need and we do not have an immigration policy fell lets us bring the men. and then we chew on the company's to outsource the jobs to were the workers of her -- to where the workers are. something has got to give. we organize against what is convenient for those of us who are in the professor court, and organizing by methods of education, not by outcomes. when we approach community colleges and i had some of the bad experiences where we work for an automotive manufacturer that guaranteed jobs, adding to classes to a curriculum that existed, and then there would be ready to go to work and never graduated. we were told it would take two years to put the curriculum in

place. the fine the right kind of instructors, and by the time they laid out the timeline, they said there is no guarantee those jobs will still exist. speed in action is missing and a lot of the taxpayer-supported the education system. we're also not talking about high school. high schools used to be and still can be a place to develop but tremendous number of vocationally trained workers. we got trapped into thinking that it was tracking or profiling. a tremendous number of skills could be provided if we returned vocational education tracks back into the high school. there is much that could be done, but i'll argue strongly that our role with the business community could play, not only where the skills are but how we go back restructuring the

educational distribution system to make it more quick, and to produce results with less expense. >> what is your perspective with was this? how satisfied are you with the current panoply of training and advancement opportunities that are there? where would you look at progress in going forward? >> we should appreciate that this is an easy place that we all like to talk about. we focus on a small number of high skill jobs where we might be able to solve the problem. or give you six things that we need to do, i think, and it's a desperate american workers need a raise. work has to pay, that is the nature of the american story. people of not going to raise for 30 years, and have coped with it by putting a second member of their family to work and spending their home equity.

too much of the consumption is going to a certain group of people. i think that the reason there is less innovation is that we have monopolies coming back into our economy. this is the most concentrated business society that we have had since reagan let loose on a lot of the anti-trust stop there you do not have business innovation and monopolistic economies. -- you do not have business innovation in monopolistic economies. we have an employer-based health-care system that is ridiculous. it costs 6% more of gdp. if we'd done not want to talk about it, pick switzerland, in

germany, to tie one. companies around this work internationally. and the vat tax, which every country uses and the world have preferences for experts and the less exports and penalizes imports. we do not want to talk about law lot of these things, so we talk about education. [laughter] [applause] >> that was certainly a challenge in set of comments. at risk of failing to answer your question, we have another panel to discuss the five issues and could we just for the moment state to the very small issue in your mind of education? but it is clearly one -- you cannot look at all of these things and isolation.

but that is a very valid point. but to stick with skills and training, laura, the former dean at uc-berkeley, from that vantage point, is the american education system failing american workers? >> i want to start with a note of sympathy for what andy just said. i have been involved with the discussion of u.s. competitiveness says the time the term was first introduced. back in 1983, it was president reagan house council on competitiveness headed by john young. i was a democrat but it was a bipartisan council appeared at the top of every competitiveness list since that time has appeared macro education -- macroeconomic conditions and the education of the work force.

and by many measures, the education of the american work force has not improved. if we agreed that this is a key issue, then we have to change the game. and i agree with byron that the models have to change. i also agree with something you said, that we spend much less as a share of gdp on and need training and other countries, and we should recognize that. one of the things i will say to go back to something that austan said, as we cut the size of government and cut government spending, we need to be really careful of those areas where we believe and they have said it for 30 years, the government actually enhances competitiveness and job performance. infrastructure spending,

research and development spending, and education spending. training is there. those are all parts of the discretionary non-security budget. the focus of the biggest spending cuts, because it is politically easy to do. i just want to get that out there because we will not solve any of these problems with the revolutionary changes. but if you're cutting everything the government does and state and local governments have to cut, those numbers about unemployment in education? i know what is happening in the state of california, people know what is happening around the country, those employment numbers are declining. having said that, it is important that we have the experience here. as a member of the president's council, and i want to throw out some optimism. and many business leaders like this. the business leaders in that group are absolutely trying to think about things that they can

do in partnership with other companies, with community colleges, and i'm sorry here about the bad experience here, to really grab the skill issue. to say, we cannot wait any longer, we have to do this. you set up a plan, and that counsel is very plan-oriented. what can we do in the first two yearsvery focused on figuring ow to increase the retention rate of students that start out in engineering degrees and then drop out. you can do something in a few years. take a pool of potential engineers and keep them there, that would be fantastic. you have to get a plan, a time frame.

on the revolutionary side of change, institutions of higher education will have to think about this. i was thinking of business schools. the majors, the first business. then a fall of system. some schools can do more, particularly in undergraduate training, requiring more math and science, to get more doable, minor/major programs to give students the skills they need more effectively. the other chart that i thought was really sobering is the excess supply of high school dropouts. between now and 2020, it has stopped dead in terms of

improving education levels in terms of share of the population. we were building of the share of the population year after year. if you look at the numbers, right now, nothing. if you look at what happens in high school dropout focus, part of the problem is no wage growth. we have to do much more with a bridging high schools and high school training. that can be done faster then changing the way colleges are organized in traditional universities. >> if we have not made much progress since 1980, there are 20 countries in the world that have passed as in that time.

it tells you that it can be done. it is not a lot of physics that cannot prove. there are many countries that have done it. there are many countries that treat vocational education with a river and a social status that is very different than our country and much more successful. i would look at in germany, which owned a big unemployment crisis and systematically changed unemployment into an employment system. they integrated the employment insurance system with the work force training system with a job placement system that for the moment you lost your job in germany, someone can help you

figure out how to get back into long-term employment. that is a doable thing. there has to be an american version -- version of left australia has changed their system quite it dramatically. instead of paying to train people, you pay for job placement and training is integrated in it can be in state government, not profit, for profit. many countries in europe seem to be public sector oriented. the common element is that they will spend on this employment system and their willingness to do whatever it takes. we have not made that move in the united states.

we do have to make huge progress. >> six weeks ago i read a piece where i think the u.s. could learn from europe. i have a lot more questions i would love to ask. i would like to open the floor to questions from the audience. if you could identify yourselves and speaking to the microphone, that would be great. >> a "washington post", from the report, it seems that labor markets do not work. i would be interesting -- is to sit in getting their appraisals as to why this is the case.

the supply of what is being demanded has not materialized. this is a very decentralized market with a developing skills for their work forces and the norm that these would be mostly career employees and by 2430, they would reap the benefits of that training and as workers become more disposable, they work with investors feared >> it

is about companies -- investors. >> i look at the job life cycles. the average amount of time you can expected to persist by geography or title has shrunk. those of us my age can remember a whole categories of jobs that are 80 or 90%. it is a common example. they are unable to continue to retrain workers and move them from job to job and with the geographic mobility, we are not able to engage in that retraining. it is somewhat nine eve of a perspective to say, companies have walked away from training, especially if the training has been in such a way where they have invested in large amounts

the training that any one company can keep someone continuously employed is a false assumption. it is from the world war two industrial late -- second world war industrialization. why didn't the markets work? companies -- and workers move, jobs mcauliffove. educational institutions are doing what they can do to cope. we have a society where individuals have not yet taken

on the notion that they are responsible for their own employability. the markets are not working because they are disorganized and confused. >> i agree with everything you said, except perhaps the last one. it may be the american yen person that they are not making an investment. there is a lot of student debt in the u.s..

i cannot say absolutely yes. this goes to the issue of what the degrees are for. then you have the problem that you said. get a degree in one area, and then 10 years from now, it will not be what you need. the employability issue -- i agree that no one is in charge of it. i do not agree that a large number of americans are not foreign sick about this and making investments in their own employability. >> i was thinking more about the fact that, when you get a degree or you come up with a high

school degree, we do not teach you about how you go about -- [unintelligible] we were speaking shorthand. how did you go about achieving basic employability? with our methods of teaching, we have to communicate an idea that one shoe achieve these goals and have a piece of paper, life is good. here are a set of skills that you're going to need. >> one second. >> let me say that i do not think you can conclude the history of the united states. i think there are some issues that have developed in the last few years around the distribution of skills and in come getting good jobs.

we know that education and good training are not market sectors. that is why it is so costly. if you are an employer, to you want to provide a lot of expensive training to your work force or are they going to take that training and work for someone else? >> i would add one thing to what was said, if the market is not working, why not. the job market is a physical market. you need to be where the job is, were moved to it. the other problem is information. someone graduating from high school passed to make a decision. how did they know what they should train for. even students in universities, pick a major and do for years of

work. figure out if there will be a job for you at the other end. both were workers trying to retrain their career as well as students trying to enter the system. >> paula stern, members, a great conversation. i am so glad you're talking about skills. i just wanted to point out, because i have been doing so much work for the national center of women and information technology that there is now a map that we'll put on a website , which by congressional districts we have mapped what the kids are doing, starting in high school, community colleges,

colleges, in particular information technology, computer science, computing in net and connected it with the job openings that are available in those congressional districts. it is a tour de force. i hope it will challenge each congressional person. education is about the federal- state, not in the government -- it has to be done of the local levels. and obama wants to talk a lot about the mismatch. many in your own area can work

with the community colleges. a board with cyber security. the fact that we will have such a demand continually in and maybe this is the theory that we will have a nice -- national foreign-language defense. now that we have this security challenge that will be with us forever, the defense department, knowing that they have to work with u.s. citizens, not just democrats, can they be a place to take that information, because they had been a change agent. they brought women into the military force. they did not have enough people in the military force. the same thing that we do not have enough skilled people. there has to be a use of that

institution called the u.s. military that may help accelerate these changes that we seem to agree that we need. >> i am a management consultant. my question is about tax policy. typically, the idea of creating jobs quickly is one of lowering capital gains rates, putting in invest -- investment tax credit increases. things are said about the comparative nature of our income tax being the second highest in the world. if you want to add it, you could call it stimulus.

[laughter] >> thanks. let's connect those questions. we are running out of time. >> i am a student. the government has proposed a budget cuts in our state. -- budget cuts in our state. how could a student get the college training needed to reject the training needed while in college -- how could a student get the training needed washing college? >> thanks. >> i am with the center for american progress. my question is about finance,

business and labor corp. for change. we have a disparity in the u.s.. it is between, we pay the tax subsidy to educate people versus two year schools. they get far less money. that is one question. it always strikes me that most of those students do not form an

organized political constituency. and not surprised that they do not get much attention. business and labor unions -- many could be students. i have not found common ground on the issue. >> that is a terrific list of questions. tax policy, cuts in higher education take your pick. i like all of the questions answered by someone. [laughter] >> i will take tax policy and talk about the overall frame of this. in doing this report, there is a

very robust effort about stimulus regarding spending and aggregate macro numbers. that debate is going on. i guess my own sense of the debate is fairly stalemated. it means there are a number of the very significant ways we can reignite the job creation needed in this country. we really wanted to focus on the areas we think are getting far less attention than it should driving significant job creation. many of my colleagues will address the skills questions. as a co-author of the report,

one of the fourth thing is refocused on was this. it was important that we got the supply side and the demand side right of the skills. the underlying economics is shifting back in our favor. challenges of the global economy and our opportunities. it means the supply changes -- the chain is probably shorter. we have the biggest in the market in the country. the global economy, people see it as a threat. it is an opportunity. we are rising by 15% a year. we demonstrated that there are dozens of cities in the middle of america that our economic and skills and are just as

attractive as indians, and are getting relatively better. we should be looking at how we created demand fair. innovation is the key to this. we will have productivity. if we do not have innovation, we will not be able to get simultaneously large creativity into job creation. there was some pessimism about low productivity. and even texas health care -- an event had health care that employed a lot more people, delivering better quality at lower costs. we have a tremendous wellspring

in this country of innovation that we can capture. if we can unleash it, we can reignite job creation. >> one of the other questions raised, a tax issue. we attract a lot of the business important to growth. it could be a way to create new jobs. one thing that is interesting mythire is a bit of wita that it is about highly technical computer skills. it is not. one of the jokes of their is the

worker of the future is the person doing basic coding. if you coupled it with the idea the u.s. government is opening up all kinds of massive data steps. the government has had an enormous amount of data allowed when innovators to start to work with it and potentially try to create a new round of jobs. we are talking about these new industries. it could lead to government assets. >> there were two questions that were very clear. one is to the gentleman from pennsylvania.

the disparity between two year and four year colleges. >> i share the concerns expressed. i think it is a tragedy. it reflects a kind of dishonesty in america. we just spent the entire discussion on skills and education and what we're doing around the country is cutting education. there are dire situations, but we need to think about revolutionizing education and think about the fact that we are making it possible for students to complete education. we agreed that we have talked a lot about credential in. i want to take one second to

say, the conversation has been great. it does been primarily about skills. the supply side of the situation is not going into a big recession. it is not why we are coming out so slowly. we had a massive financial collapse in the housing bubble. history says it will take quite some time, and we will grow slowly. in this timeframe of slow growth in the painful transition out, we must do everything we can to address the supply considerations that have always been there, to make sure that as we come out, we do not hit them again. let us use it as an opportunity to deal with the supply side issues. i mentioned earlier something we

have not talked about. one of the things germany did is their support for the economy was in infrastructure projects. they got a permiting done. they employ a lot of people around the world. we have money that is not spent right now, because of problems in the permitting area. we need to think about the fact that we are in a slow recovery. it will be hard to pick up momentum. in the business sector do to try to help this and deal with supply side issues going forward. >> inappropriate point. thank you all very much.

>> i want to close with some very quick points. whether you are an optimist or pessimist, it is very clear that we have a lot of work ahead of us. that is in terms of job growth and skills mismanagement. i want to thank mckinsey for the report. i also want to ask a question. did i not read that you had a wonderful article about france. i think it was in the "economist." last year, the french created 700,000 new businesses. is that number correct? if france can do it. -- if they can do it, that is

what we did it in 2006. in 2010, we had 500 -- 500,000 new positions. let us get on with it. we do have a new subcommittee focusing on some of these issues on post secondary education. there is a lot of work here. jeff is on the subcommittee. we hope to help this process along. i wish in the stern was not so shy. i want to conclude with what he said in the beginning.

we need a plan. we have to start with team washington. one of the things we have been trying to do is get the business leadership into the political leadership to focus on some of these issues that affect the team washington and team usa. i cannot agree more that it has to start here. i hope people will read the mckinsey report and take into consideration the comments made here today. thanks very much for being here and thanks to our panel. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

let's take a look at "usa today" headlines. to give some information about this and shed some light on what is going on behind the scenes, we are joined by. wilson from "national journal." good morning. what have you found out about why his staff members left? guest: he had a rocky blowout a couple of weeks ago when he announced his campaign. he sort of announced and unannounced and then bree announced. it is probably the worst rollout we have seen niki 2012 -- we

have seen in the 2012 run so far. then he promptly went on a vacati to breeze. -- greece. he did not look like he was going to be willing to go to iowa and at other places to woo voters. a lot of his staff had just come on to the campaign recently. i think it is most telling backed his spokesman rick tither and the south carolina aisor, signals a disapproval of the way he was going to run a presidential campaign. host: 16 of these lawmakers visor's left. -- and advisers left.

how typical or a typical is this? guest: is not terribly usual rembert, ronald reagan left a remember,ber of -- brambl ronald reagan left a large number of staffers before he became president, but it is not normal. newt gingrich is not the force in need republican party that used to be. he does not rank among most pele's idea of the t tier. we're talking about tim pawlenty and perhaps some candidates that have not gone into the race yet. one thing that newt gingrich really does is open the door for rick perry, the governor of texas.

two of his top political advisers left to work for newt gingrich. now they have time on their hands and can go back to working for him. if anything, that realization that newt gingrich is not in the top tier of the presidential campaign means that rick perry can be. i would expect him to get into the race in short order. host: your p's for today -- the piece you wrote for today is titled "rick barry's moment." where are his people defecting to? guest: there not defecting to

anywhere in particular just yet. yet.re not going anywhere and they do not have to. there is plenty of time left. there are other candidates. we will see michelle baachman jump in probably sometime before the end of the month. and perry is thinking about his own campaign. probably some others as well. not leaving to start somewhere at a new job on monday. but newt gingrich is no longer among and top tier of contenders. host: for those of us on the outside, we might hear of one staffer resigning, or a couple. how is it to go in one big block? what is the communication like? guest: fortunately, i have never had a lot people quit on me

and i have never been a part of a big group of people. i have had a happy career. but it is something that has been building for weeks. it does not happen overnight. he just left on vacatio for two weeks and that set a bunch of his advisers. the same thing happened with the mccain campaign. a lot of folks had become discontented over a long time frame and a friendly end up leading. it is not some thatust happens spontaneously. host: and finally, what do we expect to see from newt gingrich? who does he listen to right now and how do we see of his campaign survives or falters over the next couple of weeks? gues has always listened to one person first and foremost, and that is newt gingrich. he keeps his own counsel very closely.

he will participate in the presidential debate in new hampshire on monday. a lot of this strategy that his advisers disagreed with add to do with making a big impact in the early debates and setting himself apart in the field. he really has to go big or go home now. especially because the money is beginning to dry up. we heard some reports that as a part of these staff departures, he is having trouble made -- raising money. he is not able to tap into this network of large corporate contributors that everybody gave to that everyone jokingly inc.s to new tt, he has got to do something big to get back into this race to make it known that he is the

candidates who still has the best, biggest, oldest ideas, just sort of newt gingrich being newt gingrich.

it is an indicator of what the entity values. a rundown on your numbers, ambassador kennedy, you have approximately 9400 people roughly. >> i believe that is a little high. >> what is it? how many people work for you roughly? >> counting all of the consular officers overseas, it would come to 9400, yes, sir. >> you have approximately 206

senior positions in your office? i am told it is a 206 -- senior and foreign service. how many senior executives at the you have working in acquisition. >> two. >> does that not include mr. mossier? >> you are asking for direct and i am saying two. >> both of them both testified. is that the right number? if you have 206 senior executive positions, is two the right number? >> i believe that with the performance and the quality of the personnel in the acquisition of this, the leadership is there. the leadership needs to be supported by an adequately trained and adequately funded work force. because of the implementation of

the working capital fund, we have mood -- moved in that regard. i believe two is a good number. could it be three or four? i believe it could equally be three or four. i believe with the support, there are other entities that supports that acquisitions office. when you look at another agency , they have to do their own space planning, their own management, their own legal. there is an officer in the bureau. there is a senior executive service lawyer in the office of the legal adviser, who supports that office. we in the state department put all our lawyers in one's legal shop and then divide them up under assistant legal advisers at the executive service level. there is one that supports the acquisitions function. we run a matrix organization and

i believe it works for us. >> thank you very much. >> thank you. welcome ambassador kennedy. thank you for your time this morning. i want to start by saying that i was really very encouraged to see the secretary put together the quadrennial development review plan. i think it is long overdue. i know it was a painful process, but i think it will bear fruit. i am wonder what has been done in regards to that? we had the international agency for development before us. they have started taking action on some of the reforms that were in that report. they are interested in continuous improvement. business and knows the problems with their contrasting, but they are looking at the need for change.

when i look in your statement and i look at the state department policy responses to our recommendation, there does not seem to be any recognition that things in iraq and afghanistan are any different. in fact, comparing the model that is most effective and efficient because it -- strikes me as a little different than what the state department and what the u.s., in fact, is facing in iraq and afghanistan. for fiscal year 2012, the state department has requested over $3 billion for diplomatic purposes in iraq. is there anything comparable to that anywhere else in the world that your operating? >> only afghanistan comes close. >> ok. and we are going to have 4500 to five dozen contractors in iraq? anything comparable to that?

>> only in afghanistan. >> going from 8 to 17,000 civilians? anything comparable to that? >> that is double counting. >> it is different ways to cover the go the 17,000 represents the aggregate. >> i understand that. it is more than doubling. that was what it was supposed to get to. a $61 begin reconstruction program in iraq -- that appears to be very different from anything else. when i look at the things you are trying to hold onto that worked in the past, i do not understand why the difference is not more significant than the similarities. i wanted to ask you just a couple of questions about the contracts that you have led for the transition in iraq. the conflict in bosnia -- basra

-- is represented assigned to that contract and where are they located? >> basra. all of our c e r s r located. are located. they are professional architects or engineers. >> had they had that training? >> that is part of our requirement for foreign service. >> i am trying to get to whether or not practice is reflecting policy. is there a quality assurance plan for that contract? >> yes ma'am. quite the same thing for the aviation hub? >> yes, ma'am. i believe the court is the same. the aviation hub and the activity are about less than 1

kilometer apart. there are two contracts because of the different nature of the work, but there is one project supervisor on scene to do both. >> rather than going through all of that, i want to know whether or not each of these contracts as a representative. whether they have had the training, where are they located, and whether there is a quality assurance plan. those are all requirements i know you are working towards. >> you open it by talking about the need for change. can i respond to that question as well? >> let me get through the rest of my questions and i have some time. >> if your willing to stay beyond 11:00, we will be happy to -- >> i am willing to stay beyond 11:00. >> you can convince my chairman of something i am not sure i can. >> the point is, it will not be

of your time and he will state later. -- he will stay later. >> the secretary is very concerned and interested in the question of contract administration. but i think if you -- if one but said all the issues that the secretary of state faces in the world, to devote 10 pages out of the 200 page document to contacting and contract administration, i think sets the tone. >> as do i. >> the second thing, you ask what have we done since the secretary's statement. as i said, we have elevated the status of contract oversight personnel. we are linked oversight duties specifically to performance evaluation of those officers. we have expanded training and we have elevated the accountability

for the accounting and oversight of large contracts. i believe there is much more detail in my full statement. the second thing you said is that we are trying to hold onto the staffs. i would like to take a second of time on the commission acquiescence. when you have a worldwide effort such as the state department must engage in, we believe that the way to do that is to take and award master contracts in washington that can't be fully and openly competed and then had their task orders available. the best example is the world wide protective services contract. we could go and have a contingency contracts awarded in xanadu for security there, or a

contingency contract awarded in shangri-la. i do not think that makes good economic sense. i do not think it makes good management sense and i do not think it is good for the american taxpayer. if the award of a master contract for worldwide security with cast orders under it which are then completed within the eight qualifying firms, i think, allows us to move quickly, efficiently, and economically to meet exactly what the commission and tents in terms of contingency. i can also say that the state department, in effect, is one contingency rolling out every day. every day. as the chairman notes, every day the world changes and requires us to act differently. if i had to award a contract for each individual act that took

place in the world, i do not think i would ever be able to be responsive. but by awarding a master contracts, have a centralized and professional office staffed adequately now, thanks to the additional funding, we can respond urgently to any crisis we have in the world. is iraq and afghanistan different, as you laid out? absolutely positively. do i need to do a better job on contracting represent is, as the commissioners will never did? absolutely positively. but i do not submit that we are present in the past. i believe the use of these master contracts was done -- as was done in many fields, is exactly what we need to do. >> yes? ok. >> if you have five minutes. i give you an extra minute. >> it is not the world wide

contract on which to all wartell supporters i am talking about. i am interested in spending requirements, how responsive is the centralized bureaucracy, not just be radically, but how responsive as a been to the embassy in baghdad. my information from interviews and direct discussion is not responsive enough. obviously there is going to be a difference of opinion there, but the a.q.m. is not aware of the urgency. you are operating on contingencies around the world, but the chairman mentioned maybe we could get the department of defense to look at it. the dod has asked for 20 to manage the contract. the department said they could

provide six. the department of defense is saying that with six, we are not going to let you -- we need a lot more oversight than that. you mentioned rock island. who is setting the requirements for mrap? you need to sustain them and maintain them. the state department is not focused on a lot of the details because it does add that worldwide growth and it does have that sort of old-time approach to how contacting gets done. >> i guess i have to respectively disagree with you. you have given a couple of examples. for the second time, let me take the first and the last one. we have gone to dod. they are long as the equipment. we are writing their contract for the operations and maintenance of that equipment. i think that shows excellent

contingency operation. i do not see the it services the american tax payer went like to spend a lot of money and complete a contract. >> i am not talking about the contract. i am talking about how you oversee the contractors, had you manage it, adi gets support for it. the state department has to be involved in that. >> if that is the responsibility of the diplomatic security professionals that are on scene to oversee the operation of the contractors. those personnel are on see. on the mrap, we have been loaned 60 mraps by the department of defense. they will oversee the maintenance of those vehicles. we are writing again a contract to rock island. the department of defense as contracts for the maintenance of that equipment. there are specifications for

what you need to do per engine our eye in order to -- hour in order to keep those -- keep the equipment in use. when you are talking about contacting, there is contacting and then there is obviously the administration of the contract. i believe that we have both items in a tight focus. we have meetings every week to discuss these. >> i am talking as much about the requirements, too. >> can i add a little bit to that, commissioner? part of the context that is being laid out, we are talking about roots security. a big part of the mrap purpose -- moving individuals. the military mission was room security before.

the contractors out with the maintenance, thank goodness. but wonder% of the drivers and those and -- 100% of those drivers and those individuals -- you come under fire sometimes and you have to suppress that fire. that is all united states army. they did not have contractors. when you assume that portion of the mission and they all go home, you have a different requirement plan in contacting. the reason i bring that up, ambassador, you talk about operations and maintenance. i am not sure your spot on with the operations. i know you are spot on with the maintenance. >> let me address that, mr. commissioner. using the mrap as an example -- we have built into the contract a training unit, meaning a mrap

that the case as a simulator. we have a model there. the model is being upgraded. every security person that is going to be involved in the operation and use of those mraps will be run through the simulator to be sure they know how to operate it. your point about suppression of pryor's -- you are right. the u.s. military is the biggest military in the world, but i do not have that option available to me after december 31. that is why we are using -- >> you are going to use contractors? >> no, sir. >> you cannot run if you are under fire. >> that is exactly what we are going to do and that was the point i was one to make, mr. chairman. there is a difference between the mission of the u.s. military and the mission of the state department.

the mission of the united states military is to engage the enemy. >> ambassador kennedy, the chairman is taking my time and that was his question. i am going to stop you right there and you can come back on this second round to answer that question, if you do not mind. i want to go back to the business as usual idea again. i in your statement, you talked about on an ad hoc basis being able to pull together the resources that you need. i was reading a report from october 2009 about the embassy compound last night. clearly, the emergency coordination office was set up quickly. they point to that organization. the ad hoc office was responsible for a lot of the problems at the baghdad embassy. >> that was a one-of model set up by the then existing director. that is not a model that had

ever been used before. it was implemented along military lines. that model is no longer used in the state department. it was used once on the baghdad project and was distorted by me when i became undersecretary. >> i wonder a little bit when i hear you talk about the ability to keep what you have and then put something together with the need arises. this is what happens when you put something together when the need arises. i worry about that happening again without institutionalizing some stronger work force procedures -- rules and regulations on how to handle it. >> i think what you are missing, ma'am, is the experience and the value of the centralized contracting authority that has worldwide expertise and is appropriately staffed in order to get the job done. >> the expertise that we need in iraq and afghanistan is a little different than what the state department has encountered

elsewhere. >> i disagree. i disagreed on the contract. i agree on the operational requirements. i disagreed respectively on the contract's structure. it was the master contract that we set up. we are responsive. >> there will be more discussions about this. i think we have some major disagreements. let us move forward. >> thank you, very much. good to see you again, mr. ambassador. you have been doing a terrific job since we worked together a few years ago. you are still in there. that is great. it is good for the country. i want to ask you about a couple of state department responses to some of our recommendations, specifically 26a and 26b. these involve foreign contractors and subcontractors. we recommended that these folks be sent to u.s. jurisdiction as

a condition to the reward of a contract. your answer was this requirement would add cost to foreign contracts without offsetting benefits. i do not block note -- i do not know if you want to expand on that. >> i will be glad to go into that, or i could also submit additional material for the record. it is your choice. >> let me pursue this and perhaps you can't wrap it all together. your testimony says that for one contract, you are essentially using d a d -- dod. that is fine. i want to get a sense of what state is going to do to avoid the kind of thing that has been written up in "the new yorker." paint that we have heard about for some time. -- things that we import about

for some time. the article says that more than 60% of our contractors in iraq are not hired guns, but hired hands. these are all workers from south asia and africa. they live in barbwire compounds on u.s. bases. they are employed by a finite subcontractors that are financed by u.s. taxpayers. they sometimes act outside a lot. they are called a third country nationals. many talk about being robbed of wages, being injured without compensation, held in conditions resembling detention and servitude. there have even been food riots over this. you are going to be taking over. your response to something that drove part of our recommendation, which is we cannot as a country of hold our own values if we are allowing

this to go on. we want the oversight and commitment by a foreign subcontractors that they are not going to do this kind of stuff. state's answer was able at cost without offsetting benefits. to me, at least, it is a huge benefit the world sees that we get cleaned up our act. could you talk a little bit about this? do you intend to do something differently? this is a major scandal or the united states. >> i carefully calloused in light lager statement that we are using a lot at cap only for life support. the small cap contract that was in iraq included maintenance and other things. we competitively awarded our own contracts. as you well know from your

previous incarnation, that is taking advantage of the incredible buying power that the defense department has available. if i am buying frozen chicken, if i can get the dod price for frozen chicken or a gallon of diesel, i will take that any time because of the cost benefit there. setting those aside, because i believe those are appropriate, those are your correct points on the question of how a contractor operates in the treating of its staff. our contracts for life-support, both the dod contract and the contract we award, would only be awarded to a punt -- an american company. we would not award the contract toward foreign country.

we right into that contract that a hearing is to -- that adherence to -- we laid the responsibility for the performance and for the treatment of employees on the american contractor. i think that is -- gives us the best chokehold on that to make sure that any employee working in support of u.s. government activities is treated appropriately. we have looked into some of these acquisitions. the inspector general has looked into them. the state department medical officer on seen as look into them. the regional security officer as look at them. i testified before house government affairs on this as well. i would be happy to send you a copy of my testimony if you wish. we believe that we can enforce

through those methods a situation that upholds the dignity and the standards of the united states. >> by holding back on the prime contractor, who is an american company, and then looking over and across the operations on seen it with the state department, contacting officers, representatives assisted by our logistics staff for our security staff. >> all i can say is it obviously has not worked until now. if in fact, as we know, the defense department has put the onus on the primes and the primes contract out to subs and they contract out to second tier subs -- these things are happening. by definition, the system is failing. that is what we made a recommendation. i do not want to get into a

debate with you about this, but i would urge you to look at this again. clearly it has not worked. if it had worked as you described it, this would actually put the onus -- the sorts of things would not be happening. i -- >> i cannot suggest how the department of defense or any government agency may be enforcing their contracts. but under the system that will take place at the state department takes over in january of 2012, these personnel will be living on our compounds using the same food service, using the same medical services, using the same security services that we ourselves use. i think that guarantees the dignity of life that i think everyone agrees we absolutely must old. if i might, our maintenance is

now done by a different american contractor who does employ a third country nationals, living on our compound. they have been there over a year. same dining facility, medical, and everything else -- there are none of the problems you allied when we are administering the contract on seen as opposed to is holding the master contract. >> i hope so because obviously things have gone on. we made a recommendation to have somebody at the nsc in order to foster the contingency process. we do not have a dog in this fight. i am a little puzzled by that. we are talking about making the

interagency process work. as you well know, sometimes it does and sometimes it does not. we would have thought the state would comment on this. does the no comment mean it that you do not care or the system works fine? what does it mean? >> it means, essentially, that the national security staff does not consider itself an operational agency. it will not engage in this kind of oversight activity. it does not feel bet it falls within its purview. i know that because there have been other discussions during my tenure of activities related to your principal. the nsc and the omb will not engage in these. they do not feel it is within their statutory mandate. omg will lay down -- omb will

lay down physical standards, but neither of those agencies feel it is within their mandate to charter the executive offices of an agency to engage in these operational matters. we have to simply defer to nss or omb on that. >> thank you, sir. >> commissioner ervin, please. >> mr. secretary, thank you for being here. it is always a pleasure to see you. i did not intend to start with the question of i am going to start with, but it seems there were a few issues left hanging by the exchanges you have had with my colleagues. they probably will all of themselves with their realms. on this last exchange about this very disturbing "new yorker" article, you said that the

medical staff is listening to some of these allegations that have been done. you mentioned another office or two within the state department has done this. were any of these allegations substantiated by the inspector general of the medical staff? >> we were unable to identify actions of these gross and horrifying nature is taking place on units that were in direct support of the state department. i do not challenge that it might have happened elsewhere, but our investigation has not identified activities of this nature taking place against third country nationals and entities that were directly -- that would directly supporting the department of state. >> this is a very important issue. i think i speak for the commission when i say i intend to follow up on this in the time

that remains to us as a commission. i hope -- >> i fully agree that the question is posed of the requirement that the united states government promotes human dignity is one of secretary clayton's highest predicates -- clinton's highest predicates. if we ever did find these activities, we would dismast personnel potentially -- dismissed protest -- we would dismiss personnel who were engaged in that kind of conduct. >> with something like that because for revoking a contract? >> if the contract was with an american company and we knew the american company was permitting that, i would go to my lawyers

and asked that, but i suppose it was bad management on the part of the american contractor. i would first demanded the american contractor removed from any activity related to us their entire american management team. >> thank you. with regard to this first to aiti issue -- you cannot just sent a letter demanding payment. i am surprised that the office of inspector general has not responded to your request for pay. are they refusing to provide that detail? >> i believe we have not -- they have not completed whatever work they are doing. i intend to take the question back and pose it again to the office of the inspector general and say that this was a

commission -- a question i received from the commissioner on the commission of wartime contract in. i think it is a fair question for us to ask. it is a fair question to know that there is information that backs up the $132 million or it doesn't. that building has been in operation for multiple years. it is operating very, very well. there are no major issues. the compound has been rocketed a number of times, including taking the right -- direct hits on those buildings. none of our personnel have been injured. >> thirdly, on this issue of jurisdiction, would you be willing to submit to us a third party ruling on the jurisdiction in this matter? >> i am not an attorney.

all i know is that i have consulted with the state department budget legal adviser who has assured me that the position we have taken with regard to inspection of the platform as opposed to inspection of the contracts for police training or military training or rehabilitation or development of construction -- our legal adviser's position is that those are not within the jurisdiction of the figure. they are within the jurisdiction of the state department's inspector general. i must at all what my legal adviser told me. >> i am particularly interested in in those recommendations that goes into a personal -- a permanent inspector general. i think the commission will feel better about the state department's position that no new officer is needed if we had

a better sense of state support for the existing officers in the state department. as to the office of inspector general at the state department, i do not expect you to have the figures at your fingertips, but for the record, could you supply us with the state's budget request for the past three years or so, since the exit -- since the inception of the obama administration and the state department's response? can you comment on that generally and then supply information for the record? >> we fully support the inspector general. we eggs -- we believe inspector general's perform the function and for dealing with things that must be dealt with.

morning again advanced were sketching acts that should and must be dealt with severely. -- summarily. the request for the inspector general's office for fy12 is $65 million. we carry cigar in our totals. the budget for fy11 was $56 million. we have submitted a request that amounts to an almost 10% increase. we will get the information for prior fiscal years. the fy08, for example, was $52

million. they are going up because they have a regional office in the middle east whose major focus is working on iraq and afghanistan issues. the department has supported their funding request and supported the request by allocating them very scarce office and sleeping accommodation in order that they would be close to the scene to do their jobs. >> i want to talk to you -- i want to talk about our recommendation for suspensions in the department. it has been argued that reasonable minds can differ about a number of our recommendations, including the ones we just discussed. but the one it seems to me that one cannot argue is the notion that there should be written justification on those occasions

when a contacting officer recommends suspicion and the management of the department refuses to carry out that recommendation. the rationale for opposing this recommendation by the state department was requiring written justification would be an administrative burden on those programs which already have limited resources to carry out their existing missions. to me, the substance of that is it is too time-consuming to hold contractors accountable to the american taxpayer and to make sure that our diplomats, military personnel, and development officers get the support that they need. i was shocked by that response. >> the distinction is in who makes the final decision. it is not the state department's management. it is the procurement executive of the department who is

separate from the head of contacting. if the procurement executive decides that the individual contract an officer -- contacting officer has not made their case, that it is the procurer -- procurement executive. it is not made. it is not the debt and it -- it is not the deputy secretary for management. >> you are saying it would be an undue burden on the chief executive officer to make that determination? >> it is not the determination of the chief acquisitions officer. it is the determination of the clause i independent procurement executive. -- quasi-independent procurement

executive. they provide oversight to the contacting. if he, and this happens to be a he, makes that determination, it is a kind of independent interpretation. basically, i feel that is exactly what it should be. we must ensure that the american taxpayer gets a dollar worth about you. >> ambassador, we know that. we know you have to do that. >> i wanted to pursue this. i find this beyond silly. i find it outrageous that the department of state can say that when a contacting officer recommends be dormant or suspension -- recommends the suspension, that there should not be a justification for why

when it is ignored, it is ignored. it seems to me so basic. you can't i -- you and i have a huge disagreement that we will continue to pursue. how many debarment recommendations have been made in the last year? that is not acceptable. your microphone is not on. what is not acceptable is that you do not know it, yet you're saying it is burdensome. how can you say it is burdensome if you do not know it? >> i will review the issue. >> let me tell you why you should -- >> i also consult with other u.s. agencies that are impacted by this as well. >> maybe it is burdensome for them because maybe they have so many, but if this is the cobol among the administration to say we do not want to do it and you

are part of it, that would be a huge mistake. i will come down. you're going to get back to us, but let me put on the record the following? you do not know how many recommendations are under debarment, yet your department is recommending that our recommendation not be done because it is burdensome. i would think that if we have so many that are debarred, that is a huge indication of a problem. if we have too few or a few that had been recommended and the department is claiming it is burdensome, then we think it is a pretty outrageous response. i appreciate your looking at that. when you testified before the government oversight committee, you made the point that all the activities of state were inherently governmental.

would you explain to me why you made in the transition of dod to state, that everything you are doing in iraq and the transfer "are not inherently governmental, therefore you can't use contractors? -- there for you can use contractors? i in your statement, you make it in the very first part -- you just write in and say the end -- the activities we are doing are not inherently governmental. why are you making that claim? >> certain of our activities are inherently governmental. law enforcement, the activities of consular officers, political and economic reporting, executive management -- those are inherently governmental. there are other activities that i believe are not inherently

governmental. useou look -- let's security. one of the other commissioners commented on that. if you look at security, security is not considered inherently governmental in the united states. the u.s. government contracts for security personnel. >> there is security and there is security. it is a pretty broad term. let me just ask you this -- if you have an i.e.d. and you need to get a mandate to deal with the injuries that are outside the embassy and you are under fire and had to shoot your way out to get back to safety -- you have to get somebody there to attend to the wooded and you

have to aggressively use force or you have to aggressively use force to get out, why do you think that is not an inherently governmental function? >> because i believe even in those circumstances, security is not inherent in the government. i regard that as -- there is law enforcement that is inherently governmental and there is security. >> ambassador, you used security. i really narrowed it down. we have to fight our way in to get to people that had been injured and we have to fight our way out to get away from its. we have to use an aggressive effort with guns, with weapons to do that. why is that not inherently governmental? >> because it does not meet the definitions of the near the governmental. >> what is the definition?

>> the definition is something that only a governmental entity -- i realize it is circular. >> let me take this example. you say it is not. i can use a contractor. i propose you use a contractor out of necessity because, otherwise, there are a lot of combat medics paying attention to this as well as army combat, a navy corpsman. some are rolling around in their grave wondering what is going on here. the military has always made the decision that combat medics are done by a military person. by default that is inherently governmental. when they fly a chopper in -- mr. shadegg talked about being under fire. if youhaven't and i. --

have an i.e.d. out there, the u.s. army does not use civilians, government or otherwise. >> the u.s. army's primary mission is to project force in defense of the united states. >> that is projecting force. we are talking about a rescue mission. it is lifesaving. >> i think there is a distinction. projecting force is inherently governmental. >> are you comfortable with that definition as you use it? >> i am comfortable with this definition, yes. inherently, i am comfortable. secondly, there are 1800 and some odd state department diplomatic security professionals in the entire world. i need, i believe, when all is

said and done, i will need close to 7500 static guards for both afghanistan -- >> i am going to agree with you. the bottom line is necessity requires you to use contractors because you have such a huge need. let me say, you are a very candid witness. i appreciate the dialogue, but a more helpful response would be, "guess what -- we have no choice. we have to use contractors." what i hear is that if you have to use contractors, you are breaking the law. i think one of the recommendations -- and let me ask you this -- one of our recommendations may need to be that there needs to be a

recognition on the part of government that sometimes we have to use contractors, non- government people, in inherently governmental situations because, as your report talks about, sometimes contractors are part of the mechanism. maybe you need that. i believe that is where you're going with your answer. >> if essentially, i know that i have a mission that has been given to me. lawyers that i have consulted with tell me that security as opposed to law enforcement as opposed to military force is not inherently governmental. if the commission says that the process of that analysis should be changed, i am not going to object to that. i know what the basic number is and i know that there is a sign occurred here that tomorrow -- sine curve here, that tomorrow i

am will not be sending 500 employees for static security. in managing and recruiting that process -- >> we are hearing two things and i will agree with you. one is it may not be possible for you to have government people fulfill these functions. the second thing we are hearing for the record is you would have to build up to a point and then would you be able to use these folks later on when the contingency jaws down. those are the dead of valid points. >> correct. >> it may be unfair to people like you to be put into a situation where you may have no choice but to use contractors. and then have to kind of claim that what they are doing is inherently governmental. i was just but that on the record. ok? we are going to do four minutes.

i have to hold full sparely accountable to that. -- old folks -- hold folks fairly accountable to that. >> i think you have also been candid, ambassador. i respect the mission be state has assumed. i think parts of the mission you have been given, and that is a summation of what we have seen here, is wrong. we have been given plenty of examples where those situations that have historically been united states military, and they are the best in the world, you have been asked to transition into accepting that. the use of contractors is the only option. you do not have an option. in many of those options, -- my

observation that i made, and i will sum it up, that in the year 2013 the d.c.a.a. backlog for all those years, by their own estimate is one to be $800 billion. $800 billion of unaudited. it would take me longer than i have to state what the return to the taxpayers is not evident now. i gave examples of contractors that have provided submissions timely and cannot be audited because there is no resource. there are examples where contractors pullback. kbr gave an example where a new contractor got 2006 back in but have struggled to get another

submission in. my whole point is that i propose you ought to become a more visible champion for dod, assuring that your d.c.a.a. is fully staffed. they need 1000 people so they can make a dent in that backlog by 2014. i am not here to make excuses for companies, but if i am in charge of that auction in a company and i have seven or eight years that have not been audited, i would be worried about the impact. i believe that you can be a champion for that. the area with the biggest dollars we have not spent much time on is a log cabin. you're going to transition to a lot at cap -- log cap. >> for life support, not for maintenance. >> ok.

is that transition going to be log cap iii or log cap iv. >> our action was supposed to be awarded on july 31. >> if you are in fact going to use log cap iv. it is consistent with a manner that we support. we took too long, but we fully support it. >> we are using rock island. >> that is very important. as you evaluate that, you are using past performance, current issues -- if you have a company that pulls all the claims out, someone ought to ask them why? it is a fair question. what is in there that caused you when you had a senior vice president of finance that said i cert legally that we are in

accordance with the rules and regulations and then, lo and behold, they do not. i have a gazillion other questions. my time is up. i do want to thank you. i may have other questions i will provide to you. the last thing i want to say on the supporting side is you probably use, or maybe you are fortunate -- i guess in the best transition for you folks over there in providing notice -- i have seen that so often in our hearings being in disarray. it is nice to see people who know that to give notice to a witness. >> i am a great witness because i have a great team. >> if you are a great witness if you rely on them. that is a good thing to do >> ambassador kennedy, although occasionally these are combative questions, your longstanding expertise and experience has been acknowledged. i have three questions.

i will throw them on the table because i am short on time. one is, i was pleased to hear it would take another look at the $132 a day and for the new embassy compound. -- $132 million for the new embassy compound. there is more in the report that other people might realize. in that regard, i hope that you will not only asked again whether the state department as more information, but more importantly, because this report on the design and construction of the new embassy compound in baghdad, iraq in 2009 was extremely detailed. i hope we can go through it and find the parts of that $132

million that is already there. that should not be the end of the matter. my second question is, we went through the police training money. you have collected $40 million. you're going to seek $37 million back. i hope to confirm that once again because that is what the public will be hearing. i was one of the people that thought that was a credible figure. where could that have come from? the report of january 2010 on this subject said, and i quote, "as a result, we have no continents in the accuracy of over $1 billion in charges."

it is not so much i would like to find out, we want to look and see where the rest of that $1 billion went. why did only $200 million of that getting to the final? would it be ok with you if we looked and followed up and found out why i.n.l. did not take the rest of the $1 billion. you said you have gotten a legal opinion. at another point, you said you must then on what the legal