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Hearing Of The Ad Hoc Subcommittee On Contracting Oversight Of The Senate Homeland Security Committee - Allegations Of Waste, Fraud, And Abuse In Security Contracts At The U.S. Embassy In Kabul


Location: Washington, DC

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SEN. McCASKILL: (In progress) -- has a long record of oversight on all issues relating to accountability in the government, and has been a great mentor for me in this area, and it is great to have her here this afternoon.

This is -- as we bring this hearing to order, I just want to briefly talk about why we are here today. This is basically an effort to look at one contract out of tens upon thousands of contracts that has had a difficult record in terms of being compliant with contract provisions. And see if by looking at this contract, we cannot learn some lessons about contract oversight.

And I think it is particularly important, because this particular contract deals with the security of our embassy in theatre. We are obviously in a conflict in our -- in Afghanistan, and so therefore there is extreme pressure on the state department to make sure that the embassy is secure, and that is why I think this particular contract should get extra scrutiny and oversight, as it relates to how the contractor has performed under the provisions of the contract.

This contract is about a $190 million contract to provide the guard force at the U.S. Embassy in Kabul. It is a unique contract in some ways, because at most U.S. embassies around the world, the State Department hires local nationals if they need guard-force assistance.

In Iraq and Afghanistan, however, the State Department has decided to contract out the embassy's security to a mix of Americans, ex-patriots and third-country nationals.

In Kabul, our embassy security force is largely comprised of individuals from Nepal. The Kabul Embassy contract can be viewed as a case study on how mismanagement and lack of oversight can result in poor performance. AGNA is the contractor, and their performance on this contract has been deficient since the contract began in July of 2007. The result is that at times the security of the U.S. Embassy in Kabul may have been placed at risk.

In July of 2007, the State Department contracting officer issued a cure notice, a formal letter saying the contractor had failed to meet major contract requirements. The contracting officer told, and I quote, "AGNA, I consider the contract deficiencies addressed below to endanger performance of the contract to such a degree that the security of the U.S. Embassy in Kabul is in jeopardy," end of quote.

The State Department also told AGNA that it questioned the contractor's ability to provide security for the embassy and the hostile environment of Afghanistan. According to the State Department, and again I quote, "The government has serious concerns regarding AGNA's ability to respond in the aftermath of a mass causality incident or extreme loss of personnel due to mass resignation, hostile fire or loss of manpower due to illness. Therefore, AGNA needs to come quickly to terms with contract requirements, especially in light of the current incidents occurring in and around Kabul and the corresponding threat environment they pose in the contract."

According to the State Department, AGNA's failure to provide sufficient guards has quote, "Negatively impacted the security posture of the local guard program for the U.S. mission to Kabul. The staffing situation has further deteriorated to a level that gravely endangers performance of guard services in a high-threat environment such as Afghanistan," end of quote.

In March of 2009, in inspections of the guard force operations, the State Department observed that at least 18 guards were absent from their post at the embassy. In response, AGNA stated that the guards' absences were due to supervisory personnel negligence.

Documents produced to the subcommittee also show that AGNA officials responsible for buying winter clothing and boots for the guard force acquired over $130,000.00 of counterfeit goods from a company owned and managed by this same official's wife. In total, the AGNA official purchased $380,000.00 worth of equipment from his wife's company.

Instead of letting the contract end after the first year, the State Department chose to exercise the first option year. And we have learned the Department intends to exercise the second option year, which begins July 1. If they do, the Kabul Embassy will be guarded by this contractor at least until next June.

In testimony to be delivered today, the witness from the State Department has said at no time was the security of the American personnel at the U.S. Embassy compromised. I hope that is the case. I have been told that it is. But the State Department's own prior statements indicate that we have a problem. And that, in fact, the U.S. Embassy could have been at risk, and this is something we need to examine closely.

The State Department and AGNA have also advised the contractor is now fully compliant with requirements relating to staffing. I am satisfied the Department and AGNA have made major progress, and there are no remaining glaring deficiencies which endanger the security of the Embassy. But I am not satisfied with the record of mismanagement that is before us today, and the oversight that this contract had.

So my question for the hearing today is: Is this the best we can do? There are lessons to be learned from this embassy contract. By examining how the State Department and the contractor allowed so much to go wrong, we can begin the process of ensuring that mismanagement of a contract does not ever jeopardize any of our U.S. embassies.

My staff has prepared an analysis of the evidence that the subcommittee has received, and also there are 11 documents that I would like to put in the hearing record. If by unanimous consent, I would like to place the staff analysis and the 11 documents that we have received in support of this hearing information in the record.

SEN. COLLINS: I have no objection.

Thank you.

SEN. McCASKILL: Thank you very much.

And I will then turn to Senator Collins for any opening remarks she has.

SEN. COLLINS: Thank you, Madam Chairman. And I want to commend your leadership in this area. I did ask unanimous consent that my entire statement be placed in the record, and I am just going to make a few comments.

In government procurement, ensuring the best value for the American taxpayer is important under the best of circumstances. But it is crucial when our nation is at war and our fellow citizens are serving in harms way in Iraq, Afghanistan and in other overseas locations.

Federal employees and contractors working in these hostile environments should feel secure within the walls of our embassies. While safety cannot be guaranteed, our nations owns -- owes its citizens, as well as the foreign nationals that serve by their sides, a reasonably secure safe haven from those who would do them harm.

Our embassies depend on private security contractors to supplement the Marine Security detachments or other federal security officials. The best number of these security contractors perform admirable for the U.S. government. Unfortunately, however, the Government Accountability Office, the Inspector General and other investigative bodies have been numerous examples where private security contractors have failed to uphold their contractual obligations, and have left their government partners vulnerable to failure or attack.

To improve private security contractors and to protect federal interests, the federal government needs to have explicit expectations, precise contract requirements, and diligent program management and oversight by all agencies.

Today's hearing will examine this very issue in the specific context of security at the American Embassy in Kabul. We will examine the State Department's role in writing a clear, performable contract, and its ability to provide consistent and responsible contract management and oversight. We will examine the steps that the State Department took to identify the deficiencies in performance by the contractor, and whether the State Department held the contractor accountable for poor and declining performance.

In the end, we hope that the lessons learned from this hearing will improve contract administration and lead to better security for our embassies' dedicated staff. Thank you, Madam Chairman.

SEN. McCASKILL: Thank you.

Our first witness is Mr. William Moser, who is the Deputy Assistant Secretary of State for Logistics Management at the U.S. Department of State.

It is the custom of this Subcommittee to swear all witnesses that appear before us. So if you don't mind, I would ask you to stand.

MR. MOSER: Okay.

SEN. McCASKILL: Do you swear that the testimony that you will give before this Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you God?

MR. MOSER: So help my God.

SEN. McCASKILL: Thank you. We will be using a timing system today. We would ask that your oral testimony be no more than five minutes, and your written testimony will be printed in the record in its entirety.

Thank you, Mr. Moser for being here, and we welcome your testimony.

MR. MOSER: Thank you very much, Senator McCaskill.

Chairman McCaskill, Ranking Member Collins, thank you for the opportunity to appear today before you to discuss the State Department's management of contracts to provide security services at the U.S. Embassy in Kabul.

The Department of State has extensive experience with procuring services to protect our overseas diplomats and facilities. Diplomatic activity is ever-changing to meet the needs of our country amid evolving world events.

In today's testimony, I will address the performance of ArmorGroup, North America as the provider of static guard services for our embassy, as well as the State Department's oversight of this contract.

Because of the dangerous and unique environment, acquiring guard services for our mission in Kabul is challenging. However, by staying focused on the number one priority, the security of the embassy, complemented by effective contract management, the Department of State has successfully balanced its security requirements and contract compliance.

Indeed, improving the worldwide program for procuring guard services is a Department priority. The Department established an embassy guard branch in the Office of Logistics Management to consolidate, streamline and regionalize these contracts previously administered individually by posts. We believe that these complicated contracts should be centralized so that they receive the attention from procurement professionals that they deserve. We have grown to administer 53 contracts worldwide.

This transition, however, has not been without some growing pains, including a backlog of price adjustments and change management with the individual posts. However, we already see that -- the centralizing of the guard contract program has achieved results that individual posts could not achieve.

I would like to go into a little bit more detail about the security services in Kabul. We have met with your staff three times in the past three weeks. We believe these meetings have been extremely productive. The Department presented historical background, described the on-the-ground conditions in Kabul, and outlined the many steps taken to ensure appropriate oversight of ArmorGroup, North America.

Prior to the award of ArmorGroup, North America contract, the Department had terminated a contract with MVM, due to the contractor's failure to meet contract requirements. In March 2007, a new guard contract was awarded to Armor Group, North America. As required by law, this contract was awarded based on the lowest price, technically acceptable offer. This award was for one base year and four option years. The Department is currently in the first option year.

As with all guard contracts, there is constant communication with and collaborative efforts by the contracting officer and Diplomatic Security in Washington, and the Regional Security Officers on the ground in Kabul. For the ArmorGroup, North America contract, weekly meetings, and at times, daily meetings, are held on contract performance.

At the end of the first contract year, Diplomatic Security and the contracting officer completed a thorough evaluation. In addition, the Bureau of Diplomatic Security has conducted 14 program management reviews since contract award. Through this constant oversight, the Department identified several issues and deficiencies and worked to correct them with Armor Group.

However, at no time was the security of American personnel at the U.S. Embassy compromised. Indeed, one of my priorities in traveling to Afghanistan last week was to have discussions with the Regional Security Officer and Senior Post Management to confirm this fact.

During the 2007 transition to ArmorGroup, North America, the Department identified deficiencies in personnel, training, equipment, and performance. The contracting officer and the program manager issued several deficiency letters, a cure notice, a show cause notice and carefully monitored ArmorGroup, North America's corrective action plans. During this monitoring, we discovered other deficiencies concerning reporting, invoicing, and weapons for training.

The most serious of our concerns were manning deficiencies that the contractor covered by the use of overtime hours.

The Department always took appropriate deductions from its payments to ArmorGroup, North America to ensure that the U.S. Government was compensated for less than full compliance with contractual terms. At the same time, we worked with ArmorGroup, North America to correct these problems.

Through this difficult period of contract administration, we have always remained focused on what counts the most, the security of our personnel and facilities in Kabul. The Regional Security Officer in Afghanistan has always reported that despite the contractual deficiencies, the performance on the ground by ArmorGroup, North America has been, and is sound. The Regional Security Officer and the senior officials of the Kabul Embassy reaffirmed this to me last week.

Effective contract administration in a war zone is challenging. However in this case, we feel we found the right balance of enforcing contract compliance without losing sight of protecting our people and facilities in Kabul.

I look forward to discussing this -- these issues with the committee, and look forward to your questions.

SEN. McCASKILL: Thank you, Mr. Moser.

Let me start by bringing your attention to a couple of documents, which don't seem to reconcile completely with your testimony today.

On July 19th, 2007, and if we can put this document up. This was after the contract had begun. And I am quoting the document, "I consider the contract deficiencies addressed below to endanger performance of the contract to such a degree that the security of the U.S. Embassy in Kabul is in jeopardy," end of quote. And then a year later, a letter to AGNA, once again in a document from the State Department, "AGNA's inability to permanently correct personnel staffing shortages has negatively impacted the security posture of the local guard program for the U.S. mission to Kabul. The staffing situation has further deteriorated to a level that gravely endangers performance of guard services in a high-threat environment such as Afghanistan."

These are two documents that were generated --


SEN. McCASKILL: -- by the State Department that has this language in them. I am trying to reconcile your testimony today with those documents, and want to give you a chance to do, to do just that.

MR. MOSER: Senator McCaskill, thank you very much for the question.

And I really do want to start first of all, to put this into context of where we were in the contract administration, particularly with the first one. The first letter was actually after we looked at the transition from our previous guard contract with the (PA Verger Bridge ?) contract to ArmorGroup, North America.

Well, to be frank about it, this transition was not easy. And I will say this based on my 25 years in the foreign service. If you have ever been in the guard -- in a post where the guard contract transitions from one contract to another, it is a very difficult situation.

The guard -- there is usually a turnover in guards. They have to understand their responsibilities, the management changes. It is a very, very difficult situation. And, and, and to magnify this is, we have never really done too many transitions in a place as dangerous as Kabul, Afghanistan.

So really what I think that you see in the first letter, and really in the subsequent one is, too, is what I have actually encouraged all the contracting officers that work in my section to do, which is to be tough with the contractor at the very beginning, and make sure that they know that we are serious about these things.

Now, I am not going to say that these were necessarily exaggerations. But what we want to emphasize here, that if they did not correct these deficiencies with the things that were left out, that were not done really properly, yes, this could end up to be a serious deficiency in the security posture of the embassy.

But I didn't want them to go out and say to the contractors, "Oh, well, you need to correct these because these do not comply with dotting the Is and crossing the Ts in the contract." We want to tell them that these things really do have real consequences, but at the same time, the people on the ground said, "For now, this is okay."

Now, Senator McCaskill, I do want to make one point more on that. One of the reasons why that the, that the RSOs on the ground -- and I talked both to the previous RSO, who was there in 2007 and to the one that is currently on the ground in Afghanistan, and one of the things that they both -- the one that was previously in Afghanistan emphasized to me is that the previous contract, the bridge contract, was so bad and security was so poor under that, that we were really -- that the transition to ArmorGroup was still a major improvement in the security posture of the embassy.

And to the extent that the guard post could be covered, the requirements of the contract were met. In terms of the actual security, they did not want to go through transitioning to yet another contractor.

And I can be a little bit more specific with your -- to answer your questions.

SEN. McCASKILL: Okay. Okay. But you are anticipating kind of my next question.

MR. MOSER: Sure.

SEN. McCASKILL: And I do not mean to put words in your mouth.

MR. MOSER: Okay.

SEN. McCASKILL: And I am good at doing that. (Laughter.) So stop me if I do it. But what you are saying is that the first letter was meant to be serious with them, but it probably was not quite as serious as it sounded? Is that what you are saying?

MR. MOSER: Well, Senator McCaskill, I think maybe to put it this way. The previous, the bridge contract, was terrible. And we really were consider -- concerned about the security at the embassy under that --


MR. MOSER: -- under the previous bridge.

SEN. McCASKILL: I understand that.

MR. MOSER: I have a new contractor. And frankly, Senator McCaskill, I think that you want the contracting officers in the federal government to be tough on contractors, particularly when they are starting in to a new contract.

SEN. McCASKILL: Okay. So let's --

MR. MOSER: And I --

SEN. McCASKILL: -- just for purposes of this discussion, let's take that first letter and say this is the new sheriff, the new contract --

MR. MOSER: That's right.

SEN. McCASKILL: -- so you are going to be tough.

MR. MOSER: Yeah.

SEN. McCASKILL: But then a year later --

MR. MOSER: Well --

SEN. McCASKILL: -- a year later, you use the language gravely endangers performance of guard services in a high-threat environment, such as Afghanistan.

MR. MOSER: Well --

SEN. McCASKILL: But this is a full 12 months later, Mr. Moser. I mean, are we still exaggerating to get their attention or were we not saying what was accurate at that point in time?

MR. MOSER: I think that it is fair to say that because we want this to be a thoroughly documented and tough stance toward contractors, we are going to continue to emphasize that what we are talking about here is security. But this is a tough balancing act. A year later, yes, we were right there on that borderline where we were thinking about, "Continue with them? Terminate them? What are we going to do?"

And, you know, we had lots of discussions in the Department about what to do. So we knew that there were problems, but that said -- and I written -- as I said in my testimony, the day-to-day tasks on the ground were still accurate, and the security was sound.


MR. MOSER: So it is a really hard balancing act. And just to -- you know, just to put this in the right context, Senator McCaskill, is that yes, we want the contract, you know, every part of it to be complied with. And we do feel that all of the parts of the contract are important for the security of the mission.

But we have got to think about what is going to be the -- better for our people on the ground in Afghanistan. Because at the end of the day, we manage first of all, toward their security, and second, in terms of thorough contract compliance.

SEN. McCASKILL: I want to make sure I give Senator Collins a chance to question now, but I do want to -- and I will come back and ask you a few more questions. But I think it is important to put on the record right now that the first letter, you have made an effort to explain. The second letter, you have made an effort to explain.

But I think it is very important to point out that on the initiative of the State in March of this year, you did a check and inspected --


SEN. McCASKILL: -- the guards, and found that 18 posts had been left empty by the guards on duty at the embassy, and that was March of this year. So --

MR. MOSER: No, March of last year. It was -- wasn't that 2008? Or was that --


MR. MOSER: -- 2009?

SEN. McCASKILL: It was 2009. That's this year.

MR. MOSER: Okay.

SEN. McCASKILL: The third year of the contract -- well, coming up upon the third year of the contract.

But let me -- I have taken my initial time allotment. Let me defer to Senator Collins for questions.

SEN. COLLINS: Thank you.

Mr. Moser, I have to tell you that in reviewing these documents, I too, find them to be very conflicting and confusing. It troubles me if you are telling a contractor -- and by you I mean the Department of State.

MR. MOSER: Yes, I'm sure. Yes, I'm sure.

SEN. COLLINS: Not you personally. If the Department of State is telling a contractor that the deficiencies addressed below to endanger performance of the contract to such a degree that the security of the embassy is in jeopardy, if that is not a true statement, then the Department of State should not be saying it. If that is an exaggeration, then it is unfair to the contractor that that is being said.

If it is accurate, then it is an alarming situation that demands action by the State Department. So clarify that --

MR. MOSER: Okay.

SEN. COLLINS: -- for me.

MR. MOSER: Well, you know, I am not a contracting officer.


MR. MOSER: You know, I am a Foreign Service Officer. And one of the things that we are very much aware of in the contracting activity, is that there is the actual and the service being delivered is to provide security services for the Embassy in Kabul. That is the principle security service. But there is a lot of other contract terms that have an impact on the delivery of that service that are reflected.

Now, deficiency letters and cure notices are things that if you work with the parties involved, can be corrected over time. In other words, we never said that you are not providing the security services. We are saying that these deficiencies, which they call them cure notices because they are curable, that we could work with these and correct them, but they are going to have to be corrected to maintain the long-term posture of security at the embassy.

And those are the things -- it is a difficult, difficult -- I do not want to say that the contracting officers have exaggerated, no. But I think that they have given them a tough enough posture to say is, "Look, if you do not correct these problems, then over time this could lead to a serious degradation in the security in the embassy and its posture."

SEN. COLLINS: Well, let's look at another measure. The Defense Security Service does an annual security review of the contactor. Now, initially in June of 2006, the ArmorGroup received a superior rating. So that seems inconsistent to start with, as far as your statement that when there is a change in the contractor that the contracting officer is very tough upfront.

But here's the other unit, the Defense Securities Service, giving the contractor a superior rating then what happened over the three year period is the contractor's rating declines each year. It doesn't go all the way to unsatisfactory, which is what you would expect based on the cure notice, but it does decline from superior to satisfactory.

Now it's my understanding that the Defense Security Service notifies the sponsoring agency, in this case the State Department, merely whether or not the contractor is still satisfactory, correct.

MR. MOSER: That's correct. That's my understanding too, Senator Collins.

SEN. COLLINS: But does the Defense Securities Service share the actual performance reviews of the contractor with the department of State?

MR. MOSER: They do not share them with the contracting authority who holds the actual contract.

SEN. COLLINS: Shouldn't that information be shared?

MR. MOSER: Absolutely. But that's not something that, you know, if I can say this, you know, we would be happy to have external information on the contractor and what the contractor has done in the past. In fact, one of the things in previous contracts that I have actually discussed with Congress in the past, you know, my contracting officers will trace down blog posts and see if there's and allegational (ph) blog post they'll chase after it to see if it's right. I would really think it would be beneficial for us to get official information, fully agree.

SEN. COLLINS: It seems to me that it should be an automatic requirement.

Let me go to another issue and that is the nature of the deficiencies that were identified. You've testified here this morning that at no time during the performance of this contract have you felt that the security of the perimeter was breeched or that the embassy personnel were, in fact, endangered. Is that correct?

MR. MOSER: Yes, ma'am, that's correct. And it's not what I think. It's my discussions with the security officials who were on the ground. It means the people who's --- I talked about this with the people whose lives were at risk.

SEN. COLLINS: What concerns me about that assessment is the nature of some of the deficiencies. Some of the deficiencies, to me, could not possibly have an impact on security. For example, there was a failure to provide adequate gym equipment.

Now, that's not complying with the contract and that means potentially we're paying for services that weren't rendered and that's important but that's a whole different issue and does not speak to security.

But some of the issues seem to speak to security. For example, there is a charge that there was a late submission of ammunition.


SEN. COLLINS: So why wouldn't that have an impact on security?

MR. MOSER: Well, this was one of the ones --- the ammunition issue was one of the ones that the --- we were most disturbed about and this is the reason why; at one time in the early days of the contract in 2007, in the first six months, the State Department had to loan Armor Group North America ammunition, not with which to stand post but with which to train. In other words --- and the contract actually requires ammunition in three forms. It requires --- the contractor is supposed to supply ammunition for its personnel to stand at post, to train with, and then a reserve storage.

Now, we were disturbed that Armor Group North America did not have sufficient reserve storage. And the reason why this is such a disturbing thing to us is that it's Afghanistan and supply chain can be very, very difficult.

So this was one --- this was one of the ones we really were kind of jumping up and down about. In actual circumstances, the guards were still on the post, they had enough ammunition to shoot with, they didn't have to shoot anybody. But we were disturbed that if we had an incident then we could actually get pressed and that was the --- that was where we were really disturbed.

But Armor Group North America did make up that deficiency and currently have sufficient ammunition supplies.

SEN. COLLINS: I see my time has expired.

SEN. MCCASKILL: In the deficiencies -- following up on Senator Collins' questions --- in the deficiencies in the contract we have personnel, we have training, we have equipment, we have performance, we have reporting, we have invoicing, my understanding they still don't have the weapons they're required to have under the contract for training. Is that correct?

MR. MOSER: That is true.

SEN. MCCASKILL: And we have --- we're not talking about office supplies on that list, we're talking about missing guards, counterfeit goods, insufficient relief guards, manning posts with people who lack English language training, and weapons training required under the contract.

Now, maybe the question that needs to be asked, Mr. Moser, is when we're in theater, when we are sending thousands of Americans to risk their lives in a country that we have deemed such a risk to our country that we are putting men and women's lives on the line every day. Is it maybe time to say that we should not be guarding embassies in theater with private security contracts?

MR. MOSER: Senator McCaskill, you know, that's an excellent question. And, you know, I have --- I can't really give you an official department position but I can give you some of my personal views on this.

Basically, you know, we've had local guards or, you know, contract guards at our embassies for many years, as long as I've been in the Foreign Service, I think. I've been in the Foreign Service 25 years and the first embassy I went to in Bamako, Mali had contract guards and going back much further than that.

It is a good question and one that I would encourage this body to really examine and in a dialogue with the State Department about whether, in certain situations, it is a good idea.

But let me give you a couple perspectives on this. One reason that it's an advantage to use contractors is that is allows us flexibility. As our requirements go up we can hire more guards or we can ask the contractor to hire more guards. We can decrease as our requirements go down.

And one of the things that I think is something that the legislative branch will have to contemplate if we do change our current arrangements in this is that we actually look at the possibility --- that we actually remember that if we would federalize this workforce then we also have to increase the amount of embassy staff on the ground in order to supervise that force and to handle things like personnel transactions and financial transactions.

SEN. MCCASKILL: But couldn't it be military?

MR. MOSER: No, well that's ---

SEN. MCCASKILL: Why couldn't it be military?

MR. MOSER: I think you need to talk to my colleagues in DOD about that.

SEN. MCCASKILL: Well here's what I'm trying to figure out. I mean, you know, the reason we have these unusual situations in Iraq and Afghanistan is because there was a decision made that nationals were too dangerous. We couldn't hire nationals because of the nature of the threat.

So what do we do? We hire people from Nepal who can't speak English for $800 a month.

Now I've got to tell you, if this is about the locals being not sufficient to guard our embassy in theater because of the threat, it seems to me that we're not going up the food chain, we're going down the food chain. I mean, these people still --- they've told you they can speak English but you still have not made any verification that the people that are standing guard at this embassy can communicate in English. Isn't that correct?

MR. MOSER: Senator McCaskill, we are currently evaluating the information that we have from Armor Group North America and they have made the --- they have actually attested to us that the English certifications are all correct now, for all of the Gurkha guards.

SEN. MCCASKILL: And they also told you they're going to have weapons a year ago.

MR. MOSER: Yes, but I, you know, Senator, with all due respect --- with all due respect I am somewhat sympathetic with them about the weapons from based on my other experience in procurement.

You know, we try to get radios for our embassy in Baghdad or for other embassies around the world. We can't get them anymore. The reason we can't get them is because the DOD is sucking up all of these resources.

And particularly for the weapons that we procure for this we are really in competition with a much bigger buyer and Armor Group North America and other security companies are too is that there is a real shortage in terms of the supply chain side that really keeps them from getting to them.

So this is one of the reasons why --- even though I am not happy about their shortage of the weapons, I actually am somewhat sympathetic based on my own personal experience and trying to put supply equipment for our embassy in Iraq.

SEN. MCCASKILL: I understand the point you're making about the supply chain on the weapons but, Mr. Moser, this is a contract that anybody with a cold, cruel eye, looking at the oversight of this contract would say that there have been serious performance issues.

And I guess at this point the idea that you would trust and not verify when literally just a few months ago when you did try to verify you found 18 posts empty. Now, either those posts were empty because they didn't have sufficient staff, which they have told you they have now. Or, they were empty because they were negligent in covering those posts.

Now we're going to renew this contract again. And I'm just --- I guess I'm a little worried that at this juncture, with this kind of record on contract performance, that them just telling you that they're now in compliance seems to be sufficient for you.

MR. MOSER: Well, you know, one of the things is, Senator McCaskill, you know, one of the things --- you know, I've worked with local guard contracts or local guard contracts for a long time as a management officer overseas and, in fact, in one of my small posts I was actually the post security officer and had to run the guard contract myself.

You know, there are two RSOs on the ground out of 16, I think, total and with that total to grow, that spend most of their time working on this. In terms of the language skills, those are things that, you know, we look at the data that they presented but they go out and verify that as well. It's not like that we take, you know --- in fact, our attitude with contractors in general is not trust but verify. Our attitude is more like we don't believe what you're saying, we're going to check it out. And we really do try to do that in this contract as well. That's the reason why I have to have those eyes and ears on the ground in Kabul to go out and check with the Gurkhas and see if they can come out with a complete sentence of English. And I have to have them go and check the guard posts and make sure they're manned.

SEN. MCCASKILL: Well when you checked the last time could they?

MR. MOSER: Excuse me, I'm sorry.

SEN. MCCASKILL: When you checked could they come out with a sentence in English when you checked?

MR. MOSER: Well from what the indications that we had from the RSO, yes, they've made a lot of progress and that things are better.

We're going to go over the data. This issue is still --- we think that it may be resolved but we're not entirely certain.


Go ahead, Senator Collins.

SEN. COLLINS: Thank you.

Mr. Moser, just so we don't leave the wrong impression here, it's my understanding that the Gurkhas are extremely well regarded ---

MR. MOSER: Yes, they are.

SEN. COLLINS: -- in security circles, that they're well known for staying at their posts regardless of the threat. Is that correct?

MR. MOSER: That's my understanding too, Senator Collins. I've never, you know, I've seen them at posts but I've never been in a country where we've had them full time.

SEN. COLLINS: And they are, in fact, used at several embassies.

MR. MOSER: Yes, they are. And, in fact, the U.K. uses them quite extensively in various dangerous places around the world.

SEN. COLLINS: I just wanted to clarify that point.

SEN. MCCASKILL: Thank you. I probably got carried away about the food chain comment.

SEN. COLLINS: Even though --- I was just going to say I am sympathetic with the chairman's point that even if you have exceptional guards they've got to be able to communicate ---


SEN. COLLINS: -- to the English speaking embassy personnel.

MR. MOSER: Well, and this --- and, you know this is something that, you know, it's actually, you know, this is something that we do care about. I mean, this is what the RSOs have to go out and determine that they can actually run the workforce.

SEN. COLLINS: Let me talk about the award of this contract. It's my understanding that prior to the award of the AGNA's contract the State Department had terminated the previous contract with the MVM. Is that correct?

MR. MOSER: Senator Collins, if I can give you one point of clarification on that.


MR. MOSER: It's actually --- we did terminate it but they actually never performed. In other words ---

SEN. COLLINS: I guess that would be extremely poor performance.

MR. MOSER: Well, let's say that, you know, to use a polite phrase, they just couldn't get their act together. And it was very obvious in the transition period that they weren't going to be able to perform. And that's the reason why we had to terminate that one, you know, rather precipitously.

SEN. COLLINS: So let's talk about the contract that was awarded to AGNA. That was awarded in March of 2007 and I'm informed that it was based on an evaluation technique that is called lowest price, technically acceptable.

MR. MOSER: Yes, ma'am.

SEN. COLLINS: And it's my understanding that in such circumstances the lowest priced bid is selected regardless of the relevant strength of the bidder's qualifications. Is that correct?

MR. MOSER: Senator Collins, if I could put that just one more finer point on it. It is lowest price, technically acceptable. It is in the State Department legislation passed by Congress. It is actually in our authorizing legislation it is my understanding. I've seen the legislation but I don't remember the exact passage. And it is technically acceptable. In other words, to get the specifics on this, there were eight bidders on this contract. Two were found to be technically acceptable. We had discussions with both of those who were found technically acceptable and AGNA was the winner after that based on a price that was lower than the other technically acceptable bidder.

SEN. COLLINS: Now tell me how that differs from a best value approach to awarding the contract?

MR. MOSER: Well in a best value approach we would weigh the cost versus the quality of the proposal or what we think the contractor could bring to the table. And it is a --- you have to make tradeoffs between cost and what's being offered. And it is a much more complicated technical evaluation, in other words, that the program office -- and this is true in any contract, not necessarily --- not only in security services but any contract --- you're trying to make a decision of what is the best value to the U.S. government, given both cost and technical qualifications.

SEN. COLLINS: Now, it's my understanding that the current contractor, Wackenhut, I believe is how one says it, bought the company AGNA, correct?

MR. MOSER: Yes, ma'am.

SEN. COLLINS: And that they had been one of the bidders but lost out because their bid was considerably higher. Is that correct?

MR. MOSER: Their bid was not judged to be technically acceptable.

SEN. COLLINS: It was not technically acceptable. Was it also higher?

MR. MOSER: That I don't know. I don't --- I don't know.

SEN. COLLINS: Is there a process when a company is acquired for reevaluation of the contract?

MR. MOSER: Normally we do not do that. You know, companies do get traded and usually if one goes to another as long as the other security parts are met in terms of the acquisition about foreign ownership or other things we don't really go in and change because our contract is still valid.

SEN. COLLINS: Do you know why Wackenhut was viewed as not being technically qualified?

MR. MOSER: No, ma'am, I do not.

SEN. COLLINS: It's my understanding that the contractor is currently operating at a loss of a million dollars a month, according to the testimony. This has raised the question in my mind of whether, given the lack of compliance with the contract requirements, the requirement that you essentially take the lowest acceptable bidder, which sounds great, we want competition and we want the lowest bidder but we also want quality performance.

Do you believe that the bid price was too low to be feasible for a security contract under these constraints? Or is this just a --- the contractor agreed to it so obviously that's not the government's fault but what is your assessment?

MR. MOSER: Well I --- maybe if I can answer the question this way; as I've said, I've been in the State Department, overseas mostly, for the last 25 years and have seen a lot of contracts, overseas contracts, and our biggest contract at any normal post is always the guard services contract.

Lowest price, technically acceptable gets us the best value product but usually at the least cost but it gets us an acceptable product at the least cost.

If you have best value you would have the chance to get, perhaps, at a higher cost a better product. And this is the reason why, particularly for these very, very difficult security situations like Afghanistan and Iraq and Pakistan, I think that you really should look at a --- we really should look at a change in legislation that would give us a best value was of appraising this.

Now, I say this partly because I'm a big believer in contracting officers and contracting offices and program offices and I really think that if they have --- if you give the employees at the federal government enough flexibility and the employees at the State Department enough flexibility to make good decisions they'll try to make a decision that's in the U.S. government's best interest.

Because I think you both share with me that our first priority is making sure that we have the security --- that we have good security for our embassy personnel in the most dangerous of situations.

SEN. COLLINS: Thank you.

SEN. MCCASKILL: In January of 2008, AGNA informed the State Department that the logistics manager, the official responsible for AGNA's contracting for embassy guard force may have been buying counterfeit goods and had purchased over $380,000 worth of equipment from a company owned and managed by his wife.

What actions did the State Department take at the point in time that it learned that information?

MR. MOSER: When --- at the point in time when we learned that information we told AGNA to continue its investigation, report back to us, and once we learned that this was true we asked for the individual to be removed from the contract, the person that was their employee.

SEN. MCCASKILL: And what about the wives company? Was there any investigation, was there any thought to having a fraud investigation because clearly when you have that kind of an arrangement, speaking as a former auditor, that's generally when you have kickbacks going on, that's generally when you have money being exchanged under that table.

Did there --- was there any thought at the State Department that this would be a time that you would want your fraud investigators to look at what was going on in this contract in case taxpayer money had been stolen?

MR. MOSER: Well one of the things is, Senator McCaskill, you know, I'm a big believer in audits and actually I am a big believer in them. But, you know, this is a firm fixed price contract, that's the nature of lowest price, technically acceptable that it's at a given price. In other words, we pay them for the guard hours that we ask for.

So there isn't really, you know, the fraud isn't really committed against us. In other words, let me give you an example. You know ---

SEN. MCCASKILL: Wait a minute, wait a minute.

MR. MOSER: Well, let me explain, let me explain. You know, I lived in Central Asia for three years, I was assigned to our embassy in Kazakhstan. And, you know, the counterfeit goods were all over the local markets but I couldn't always tell whether they were or not counterfeit. And I know that this happens, particularly in these Asian countries with close proximity to China, this is very, very common.

What the --- in our contract we say you will give the guard a coat. We don't say what kind of coat, quality of coat, anything like that. So to us, the fraud wasn't really committed against us. The contractor was giving the guard a coat. We didn't know what the coat was. So there really wasn't any fraud against us.

Now, you know, we're more than happy to call the OIG when we think that there has been something untoward --- call our own inspector general when we think there's something untoward in our contract. But we didn't ask the contractor to provide a certain brand or a certain quality. We just specified the item.

SEN. MCCASKILL: Okay. So, I want to make sure I understand this. If the United States government is not seen as the victim of a financial crime there is no interest in looking at, for fraud purposes, activity of a contractor that could, in fact, be criminal. Is that what you're testifying, Mr. Moser?

MR. MOSER: Senator McCaskill, I'm not sure if I can really answer that question. I'm just not, you know, I'm just not --- I know that in this case -- all I can do is talk about what we did in this case. And what we did was the person was removed from the contract. We weren't really effected by the counterfeit goods and we didn't do any further, you know, anything further on this.

SEN. MCCASKILL: Well, I just --- I have to tell you I'm surprised. I think most people would be surprised that if you knew that someone that was a contractor for the United States government, that someone who was a major acquisitions personnel within that contract, if you found out that they were buying counterfeit goods from their wife and it was $380,000 worth of goods, even if it was a fixed price contract it would seem to me that somebody would go, we need to ask some questions here because it may be that we've got criminals working for us.

MR. MOSER: Well we did take the action --- we did take appropriate action in terms of having that individual removed from the contract.

SEN. MCCASKILL: Are you confident that this particular company was no longer used in terms of buying things from this company as the contract moved forward? Did you make inquiry in that regard?

MR. MOSER: We felt that the problem was resolved after the person involved was removed. And we also felt that they gave us an adequate explanation of what was going on.

But I'll be honest with you, Senator McCaskill, the RSOs looking at the goods that are actually, that the guards have, are not going to know whether they're counterfeit or not. That's just realistic.

SEN. MCCASKILL: I'm more worried about the relationship between the procurement official in this contract and the person they bought the stuff from. You know, I mean, do we have no responsibility to make sure that the people who are working for us are following basic guidelines in terms of following the law?

MR. MOSER: Senator McCaskill, this is what I would say is that the person that my contracting officer has a relationship with is the company. The company informed us that this activity was going on and that they needed to investigate it. They took appropriate action by dismissing the employee involved in this. And we felt that our interest in it ---

SEN. MCCASKILL: Well, but I guess what I'm saying is maybe appropriate action was sending that person to prison. How do we know they took appropriate action if you never asked the question?

MR. MOSER: Well, I can't answer that.


Finally, Mr. Moser, this contract is going to be renewed, correct?

MR. MOSER: Our intention is to renew this contract.


MR. MOSER: Or not actually to renew. What it is is actually exercise the second option year.

SEN. MCCASKILL: And was this a close call?

MR. MOSER: Senator McCaskill, it wasn't a close call, it wasn't really a close call this year and this is the reason why; the contractor has, as I've said today, has done a reasonable job in providing security for the embassy and that we've been satisfied with that performance. We --- when there haven't been enough men at post and we do have, let's say, redundant coverage to make sure that the manning never endangers the security of our personnel on the ground in Kabul, that we've been able to make up for that through using our redundancy to make sure that the manning was covered.

The security has been sound. The things that we've asked for them to correct, the deficiencies that are outlined voluminously in our contract files, have been, for the most part, corrected except for the one deficiency regarding the training weapons and we feel that that will be resolved going in to the next year.

Now weighing that against the --- against the risk that we would undertake for our employees in Afghanistan if we went to another contractor, we think that exercising the next option year is really the best alternative.

SEN. MCCASKILL: Would it change your opinion as to whether or not you would want to renew an option year if you knew the contractor didn't want to work under this contract anymore?

MR. MOSER: Well, Senator McCaskill, if the contractor doesn't want to work under the contract anymore he should give us a formal notice that he doesn't.

SEN. MCCASKILL: Okay. Thank you, Mr. Moser.

Senator Collins, is no longer here. Okay.

Thank you very much for being here today. I also want to just briefly mention that I think that you have tried diligently to provide us with documents. I know that you didn't have months to prepare. But I would just put on the record that I think there's still some work to be done in terms of how responsive the State Department is to request for information because it's been a little bit of an arm wrestle.

MR. MOSER: Senator McCaskill, if I can say one thing is -- on that. You know, the document release or the process of document release is not something that I'm responsible for in the State Department. But I will say that in the contracting authority there is virtually no document that we are unwilling to share because the contracting officer's best friend is transparency. And, in fact, we think an honest dialog with the members of the legislative branch is to our benefit and we are more than happy to share the documentation with you. But we do have a process in the State Department.

SEN. MCCASKILL: Well --- and I think that's a question for another time and something I'd like to get in to with the State Department because it's my understanding that based on independent analysis there are FOIA requests that are a decade old at the State Department. And that, for somebody who's just used the word transparency, I'm proud of our State Department but for anybody who works there I can't imagine an excuse that could be valid for FOIA requests languishing as long as they do in many instances. And unfortunately for purposes of most members of the Senate, if you're not a chairman of a subcommittee or a committee you're request for information at the State Department is treated the same as any person off the street. Now I'm not sure that's a bad thing as long as the person off the street is getting the service they deserve.

But I would certainly send you back to the State Department with encouragement that we're going to continue to look very closely at how easy it is to get information and how quickly we can get information on the State Department and ask you to send the word out that that needs some work over there.

MR. MOSER: Senator McCaskill, you know, the person that is in charge of that function is another one of the deputy assistant secretaries in the bureau I work in, in the bureau of Administration, and I am sure she would be happy to talk to you about his issue at any time.

SEN. MCCASKILL: We'll do that.

MR. MOSER: It's something she's very passionately concerned about.

SEN. MCCASKILL: Thank you for being here today.

(Background talk)

Okay, I want to put on the record that Mr. Moser has indicated that he will come back to the table, if necessary, for follow up questions after the testimony of Mr. Brinkley.

I'm not --- I haven't been here a long time, I'm not really sure about this not being at the same table at the same time and where that comes from. I don't get it. But it is what it is so welcome Mr. Brinkley.

You are the vice president for Homeland and international security services of Wakenhut Services, Incorporated. As I indicated to Mr. Moser, it is the custom of this subcommittee to swear in all witnesses. And we'd ask if you would stand.

(The witness was sworn.)

We welcome your testimony and ask that -- your entire testimony will be put in the record. We ask that you try to limit your testimony to five minutes. Thank you.

MR. BRINKLEY: Thank you, Madame Chairman. I know that the ranking member Collins has left, but --

SEN. MCCASKILL: She'll be back.

MR. BRINKLEY: -- I'm looking forward to seeing her return.

I'm here at the request of the subcommittee to discuss the U.S. government's contract to provide protective force for the U.S. Embassy in Kabul. As a background, as the vice president for homeland and international securities, I have previously served as a Marine infantry officer for 20 years. I've commanded through platoon through battalion levels. I was the W.M.D. policy advisor in the Office of Counterterrorism in the Department of State for over three years to including on 9-11.

And I've been a professional staff member on the 9-11 Commission. I have over 35 years of experience in securities, special operations, and force protection. This past year, WSI came to own ArmorGroup North America often called AGNA, that is the prime contractor for the Kabul Embassy contract. Now the events that led to this acquisition are somewhat circuitous. So let me go through that.

In May of 2008, our parent G4S purchased the parent of AGNA, ArmorGroup International in a friendly takeover on the London Stock Exchange. G4S purchased ArmorGroup International for the purpose of acquiring ArmorGroup's profitable operations in other parts of the world, not for any reason having to do with AGNA. AGNA was a troubled part of the broader ArmorGroup enterprise; and that came along with the acquisition of ArmorGroup International.

At the time of G4S's acquisition of ArmorGroup in May of 2008, ArmorGroup North America was subject to a notice to cure 16 deficiencies and weaknesses that had been issued by the Department of State on April 30, 2008. WSI has a strong reputation for effective performance of guard service contracts at U.S. government facilities. And our parent G4S asked WSI if we would take responsibility for assessing ArmorGroup North America's problems at the Kabul Embassy contract. And for ensuring that whatever needed to be done was done to come into full compliance with contract requirements.

With the occurrence of -- with the concurrence of appropriate U.S. government officials, ownership of the stock of ArmorGroup North America was transferred to WSI in November of 2008. Now within WSI, I was given the responsibility of overseeing ArmorGroup North America's corrective action in bringing AGNA into contract compliance starting in May of 2008. And I have total responsibility operationally for AGNA's performance of the Kabul Embassy contract.

During the past year, we have one, worked very hard to correct the inherited deficiencies in AGNA's performance of the contract. Two, we have brought to bear the extensive experience of WSI acquired over many years of successful performance of guard services contracts for the U.S. government. Three, I personally worked with the forces on the ground at the Kabul Embassy and with the responsible parties here at State Department to address each deficiency and weakness. Four, WSI has made appropriate personnel changes and has thoroughly redone AGNA's internal processes and procedures to attain and sustain contract compliance.

We are proud to say that now we have addressed each weakness and deficiency in the performance of the contract. And that today AGNA is in full compliance with staffing and major requirements of the contract. The Kabul contract has been fully staffed since January of 2009. There is only two issues that we see remain open. We are waiting the manufacture of certain training weapons, and that's been discussed with the previous panel member.

However, I would like to point out that no training has been missed because we were using government-furnished training weapons versus the ones the contract required. We also have a requirement for a relief or a back-up armorer. That armorer completed training yesterday; and we will be deploying that person to Kabul. However, the contract requirement of having an on scene armorer that post is filled.

I've submitted my written testimony as a -- in that written testimony is a chart that shows the timing of our acquisition to ArmorGroup and the ownership chain and some of the key contract events since May. And you have that as an attachment to the written testimony.

I'd like to emphasize four areas. Upon arrival, we immediately took steps to assess the situation both on the ground and here in the United States. We sent a senior management team into Afghanistan to get a first hand view of the situation. We were most concerned that the security of the embassy was impaired. While there we walked the ground with our leadership, talked with the Department of State, the DOS customer, to get their view of the operational status. Back here, we brought in staff expertise to examine export control compliance, finance and contract administration.

What we found was, one, protective force operations on the ground were executed well and in good standing according to the RSO. There were significant contract compliance and administrative issues. The department had issued a cure notice with 16 deficiencies on April the 30th. The department did not believe that AGNA's contract non- compliance rose to the level to impair the security of the embassy. We agreed with the department's perspective that the embassy was secure.

Secondly, we moved to quickly develop a comprehensive corrective action plan that would bring the contract into compliance. We submitted a new comprehensive plan to address each deficiency and weakness on June 12, 2008. We implemented within AGNA and on to the contract proven WSI processes to staff the project with talented, reliable, U.S. and expat and a Gurkha guard force.

Staffing of course was the major weakness of contract compliance. We changed and strengthened the ArmorGroup North America headquarters and in-country leadership. Third, while we take the contract deficiencies seriously, we still see the embassy secure. The contract is fully staffed since January of 2009. There are several items left to be closed on the original 16 deficiencies.

We found nothing inconsistent with DOS's views that the embassy is secure. Finally, to attain and sustain contract compliance, financial resources have been spent. WSI and G4S are losing about a million dollars a month in the execution of this contract. In 2006, which has been discussed with the previous panel member, Assistant Secretary Moser, we bid on this contract. We lost to AGNA. The department did determine that our bid was not technically correct. But I will tell you that our proposal price was significantly higher than ArmorGroup's.

Ironically, we now own AGNA; and are having to execute this contract with what we believe is an unreasonably low price. After a year, I have become convinced that the services within the statement of work cannot be provided with ArmorGroup North America's proposed price. Let there be no doubt regardless of the negative financial impact that WSI has had, WSI is dedicated to mission one the security of the U.S. Embassy.

In conclusion, I am most proud of the AGNA and the WSI employees who have worked so hard over the past year both here and in Kabul to make this contract right and to keep this embassy secure. They in fact are true professionals. With that, I'll be glad to answer your questions.

SEN. MCCASKILL: Thank you Mr. Brinkley.

Let me start with what is obvious here. Did you send a notice to the State Department that you do not wish to participate in the third year of the contract?

MR. BRINKLEY: We have not.

SEN. MCCASKILL: And why have you not done that?

MR. BRINKLEY: Well I look at this in two ways -- we are a guard company that prides itself in doing missions well. We have worked very hard over the last year to make this contract compliant; we're very proud of that. We can do this job. So we -- from that perspective, operationally we are proud to do that and proud to make it right. On the other hand, there is the financial business side I'd prefer to do it and not lose money. So, that that's where we are at this point in time.

SEN. MCCASKILL: Well, I'm confused. If you're losing a million dollars -- did you say a million dollars a month you're losing?

MR. BRINKLEY: That's correct.

SEN. MCCASKILL: If you're losing a million dollars a month, why wouldn't you tell them you don't want the contract again? And they would have to re-bid it.

MR. BRINKLEY: Well, it's my understanding that it is the government's decision to execute the option.

And I just heard Assistant Secretary Moser's testimony that we have the option; and we will take that under advisement.

SEN. MCCASKILL: Okay. You've testified that in January of this year, the contract was fully staffed and even over staffed according to the requirements of the contract. But yet, a few months ago when it was -- the State Department did a verification of that, there was in fact -- it was determined there were 18 posts vacant. If you were fully staffed was that just negligence?

MR. BRINKLEY: It was an issue associated, senator, with break time with the guard force. The guard force has a requirement that on several times a day in the morning, at lunch, and in the afternoon to break personnel on posts. The personnel on posts were improperly relieved. They were actually on embassy and were in the break room. Were the posts open? Yes.

Were the personnel on the embassy grounds and able to respond? Yes. The deficiency was based upon the supervisors that were immediately over that, that did not ensure the break occurred properly.

SEN. MCCASKILL: Could you shed any light on the situation with the counterfeit purchases; and the procurement officer buying almost $400,000 worth of goods from his wife?

MR. BRINKLEY: Madame Chairman, that happened before our acquisition of the company. I have the same knowledge of the documents that the committee has. And I don't have any --

SEN. MCCASKILL: Is that individual working for you?

MR. BRINKLEY: I'm sorry.

SEN. MCCASKILL: Is that individual working for you?


SEN. MCCASKILL: And do you buy anything from his wife's company?


SEN. MCCASKILL: Let's talk about the language issue. You are now representing that you have all of your folks in compliance with the language requirement of the contract.

MR. BRINKLEY: That is correct. And if I might, let me explain the process that -- what we inherited and the process we are doing to ensure that the personnel that are at the embassy have their language requirements and maintain; if you would let me. One, there were a number of personnel prior to our acquisition that did not have the language capability in which the contract mandates.

As we acquired that -- the company, there at that time was a full time English instructor in Kabul, on the contract, teaching English to fill that gap. That instructor certified all the personnel at that time at the Level II (ph) English in accordance with the requirement. Now, we noticed that this is obviously a problem for the long term. So as we go now to recruit Gurkhas as replacements, we give them full language tests in Katmandu to even qualify them to be as a part of this guard force.

And so, we certify that with an independent instructor in Katmandu, outside of those that would do the actual recruiting. So we have an independent assessment of their capability. And then we have that documentation. Additionally, we currently have a full time English teacher in Kabul, in Camp Sullivan that has language classes every week with the current force. Additionally to that, we are in the process of hiring a second language instructor to go in to augment that current instructor to increase the number of hours that we have capable.

So all the current guard force have certifications of which they are Level II or Level III as required. And we are putting and we have -- and are going to increase the capability to sustain that with language instructors on the contract.

SEN. MCCASKILL: And finally, before I defer to Senator Collins, you're receiving around $37 million a year on this contract?

MR. BRINKLEY: I would have to look at the exact numbers. It's whatever $190 million is divided by five, I guess, whatever one-fifth of that might be.

SEN. MCCASKILL: And the third county national -- the third country nationals are making about $5.35 an hour.

MR. BRINKLEY: They have a set rate of about $800 a month, yes.

SEN. MCCASKILL: And the local nationals, which you have some working on this contract make $2. an hour?

MR. BRINKLEY: That's correct.

SEN. MCCASKILL: Thank you.

Senator Collins.

SEN. COLLINS: Thank you.

Mr. Brinkley, I want to go back to the letter that the chairman mentioned, that was sent March 30th of this year. So this is when the obligations are at this point firmly under WSI's control. Talking about the Kabul staffing issues and listing the areas where there appear to be vacant guard posts over a period of, I guess it's just two days. Now is the evidence that the 19 posts that were identified were not vacant all at the same time, correct?

MR. BRINKLEY: That's correct.

SEN. COLLINS: But what's disturbing to me is this was a spot check over two days, and it found so many vacancies. So to me, what you have here is a pattern that is disturbing; and it isn't as if these guard posts were vacant just for a few moments. They were vacant for long periods of time. For example, in one case they are vacant from 11:00 p.m. to 2:30 a.m., 210 minutes.

In another case, they are vacant for 76 minutes. So it's not as if just for a few minutes these were vacant. And while I understand that not all 19 were vacant at the same time, to me it's more troubling that there was a pattern each day of vacancies. Has this problem been remedied?

MR. BRINKLEY: Senator Collins, the answer to that is yes. We were disturbed with that as you would think we would be. We obviously debriefed and have talked to the actual inspector. We have made sure we understood clearly how it was done and the problems. And where we needed to take corrective action with supervisors that were necessary, they've been removed from their posts. And different supervisors have been placed.

I personally talked to the program manager about that issue. And we know that they have taken corrective actions. And we believe that that is not -- will not be a reoccurring thing.

SEN. COLLINS: I discussed with Mr. Moser the initial award of the contract to AGNA. And he told me that WSI had bid on the contract, but that you had not been found to be technically acceptable. Is that accurate?

MR. BRINKLEY: I was not in the debrief of WSI from the selection. I was part of the operation's advisors on building the contract on our submittal. And so, I believe from my perspective I was most focused on the price difference. If there was a technical part of the proposal that -- in which WSI was found not technically acceptable; I'm unaware of what exactly what that might be.

SEN. COLLINS: I would like you to get back to me on that issue because your testimony says that it was a matter of costs not technical qualifications. Mr. Moser says that it wasn't a difference in the price, but rather that WSI was not found to be technically acceptable. So I'm going to ask both of you to get back to me on that issue.

MR. BRINKLEY: Yes ma'am, we'll take that for the record and we'll get back.

SEN. COLLINS: You have mentioned in your testimony and confirmed to Senator McCaskill that you're losing a million dollars a month on this contract; which does raise the issue of why you would want to continue the contract, at least the next option year. That seems very odd to me. Could you expand on your answer on that?

MR. BRINKLEY: Yes, senator. As I described to the chairman, it falls into two areas. A, operationally, we take great pride in being able to perform very complex, complicated contracts and doing them very well. And we have a long history of being able to do that in WSI. We bid on this contract because we knew we could do this contract. And we knew we could do it well.

We now have assumed this contract and it's been a difficult, not without a lot of work on some very hard working professionals, we have become contract compliant. And so, from that perspective we would -- it would be very difficult for me to sit here knowing how hard everyone has worked to get here to say we would not want to continue to do it and do it well.

On the other side, from the business side, of course we would like to get paid for what it cost us to do it well. And as my testimony indicates, I'm convinced after a year that we cannot do it contractually compliant and meet the statement of work requirements with the initial bid.

SEN. COLLINS: Which I guess gets me back to the issue I raised with Mr. Moser about the statutory requirement that's clearly well intended. I hope I don't find out later that I actually wrote it -- that says that it ought to be the lowest bid of the technically- acceptable contractors. That makes perfect sense, we want competition. We want the lowest price.

But it looks to me like there was a pattern here of underbidding to try to secure the contract in the first place; and then, a failure to perform. So I'm going to ask you this question. Is WSI financially secure enough to fulfill the contractual obligations such as providing all the necessary, legally-obligated equipment, staffing, supplies, training for the employees, who are working on this contract and continue to lose a million dollars a month?

MR. BRINKLEY: Senator, I can assure you that we are financially capable of fulfilling all the requirements of this contract.

SEN. COLLINS: Thank you.

Thank you.

SEN. MCCASKILL: Well let me just step back and look at -- take a broad view. We are -- we've got thousands and thousands of men and women in uniform in Afghanistan. We all know the challenges Afghanistan represents in terms of our military mission. We know that the option of hiring in country -- local nations was not an option because of the issues of security surrounding local nationals.

You are a former Marine; and thank you for your service. I'm looking at a security contract where we're paying some people as little as $2 an hour to guard the embassy. The majority of the people guarding the embassy are making a little over five bucks an hour. And the company that's providing this is telling the United States Congress that they are losing a million dollars a month on the deal.

And I am not -- don't want to impugn in any way your company's integrity. I'm sure you have every intention of complying with this contract over the year; but losing a million dollars a month is pressure. I'm asking you now should we be hiring private contract firms such as yourself to guard embassies in this situation? Or should we as a nation begin to contemplate the notion that when we are in theater, the embassy in theater should in fact be guarded by our own military?

MR. BRINKLEY: I will defer the answer on the latter to the force capabilities for the Department of Defense to determine whether or not they have the resources to do that or not and within their -- in their view of that. Can we as private security do this job? Oh yes, absolutely. There is not an issue here. We're doing it now and we're doing it well.

Some of the issues associated with our -- the cost issues are really based upon how the proposal itself was structured. There's two issues, as you would know, in a firm, fixed price -- let me put it this way -- in some competitive markets, the requirements that people think are necessary to get the work can drive people to do things that are unreasonable in the price. And they'll lose money on it. People make bad business decisions.

In this case, we know that it takes more than this proposal was initially bid for. Not necessarily because of the price for the salaries, but how it was structured -- the manning factors, the number of people that it takes to actually meet the contract requirements. So the structure of the contract or the bid itself is significant in how -- what the losses are. We have applied all the resources necessary to ensure that we are fully contractually compliant, can handle people on emergency leave; can handle people that are delayed coming back from R&R. That takes additional manning on the ground.

Many of those cases that financially drive that are the U.S. personnel that are required on this contract, because they are not $800 a month people. And let me go to the $800 or the $2 an hour person. The local nationals, as anyone would know, and I'm sure even on the ground at the embassy, are getting paid prevalent wages that are for that particular area.

I will tell you no -- because I've been on to the ground and I've talked to the senior local national that is our interpreter; and worked with all the local nationals. The pay that we get them makes some of those local nationals some of the higher paid people in Afghanistan. They are loyal. They have been with this contract for a long time. They come to work every day and they're very dedicated to doing this well.

The $800 that we pay the Gurkhas now -- and that is not, that is the minimum level for initial -- for a level guard. That is not the leadership. That number is significantly different for the senior guy, who is a retired sergeant major, a British army experienced Gurkha. This is a prevalent wage, it's competitive.

That wage itself is higher than we pay for the guards, the Gurkha guards that are on the U.S. Embassy in Baharain. It is higher than the Gurkha guards that are standing duty on the naval support activity in Baharain. And it is competitive with the salaries according to the Gurkhas that are protecting the British Embassy in Kabul. And many of those Gurkhas have been out there for any number of years. It's competitive. They are very talented, dedicated people that come to work every day and do their jobs very well.

So it is difficult for me at times to make you think that it's the cost per hour versus -- it is the problem that we are not getting value for the people that paid those wages to, because that is not correct. And that we should not be, in my view, using as the standard from which we judge of the security of the embassy.

SEN. MCCASKILL: Okay. The contracts you just referred to, does your company have all those contracts?

MR. BRINKLEY: I have the security -- I have oversight of the securities for the naval support activity in Baharain. That I do have --

SEN. MCCASKILL: And for the British Embassy in --

MR. BRINKLEY: The British Embassy does not fall under my responsibility, but it does fall under a part of group force --

SEN. MCCASKILL: So it's your company?

MR. BRINKLEY: The parent company on the latter.

SEN. MCCASKILL: Okay, so are those contracts profitable?

MR. BRINKLEY: I am not clear -- I don't know the answer to that. The naval support activity in Baharain, the answer is yes. I have that contract. So I know that contract is profitable.

SEN. MCCASKILL: Well I would be interested -- and you can take this question for the record. I would interested in your answer as to why the contract that you have with -- in Baharain, why it is profitable and why this one isn't. And what is the differences between the two contracts that make one profitable and one not.

And I am -- I am going to continue to be troubled by the notion that you can be fully compliant on a contract that you're losing significant money on. And I think we've got to figure out a way to resolve that because there are two more years of options on this contract. So are you signing up to lose $12 million a year for the next three years? And if so, I just think that defies common sense. And generally when we're defying common sense, something happens that shouldn't happen.

So I would like you Mr. Brinkley to go back and take a look at that proposition. And give us some information for the record comparing these contracts that your company has, where you are essentially providing third country national guards for the United States government, for security purposes; so that we can try to get to the bottom of it from an oversight perspective.

MR. BRINKLEY: We'll be glad to do that, senator.

SEN. MCCASKILL: Thank you very much.

I thank you and Mr. Moser and the State Department for the hearing today. I think we've learned some things about contract oversight as it relates to guarding our embassy in theater. I think we've got some issues that we need to talk about in terms of going forward. I greatly appreciate the cooperation that was shown to the committee. And I look forward to even greater cooperation and maybe I can talk you guys into sitting at the same table the next time.

Thank you all vey much. This hearing is adjourned.

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