Turning to Iraq, DOD has relied extensively on contractors to undertake  major reconstruction projects and provide support to its troops. Reconstruction and support contracts are often cost-reimbursement-type  contracts, which allow the contractor to be reimbursed for reasonable,  allowable, and allocable costs to the extent prescribed in the contracts. For example, we reported that as of March 2004, about  $1.8 billion had been obligated on reconstruction contract actions  without DOD and the contractors reaching agreement on the final  scope and price of the work. However, as our December 2006  report made clear, DOD’s guidance does not address a number of  problems we have repeatedly raised—such as the need to provide  adequate contract oversight personnel, to collect and share lessons  learned on the use of contractors supporting deployed forces, and to  provide DOD commanders and contract oversight personnel with training  on the use of contractors overseas prior to their deployment. Without such visibility, senior leaders and  military commanders cannot develop a complete picture of the extent to  which they rely on contractors to support their operations. Also, when senior military leaders began to develop a base  consolidation plan, officials were unable to determine how many  contractors were deployed and therefore ran the risk of over- or  under-building the capacity of the consolidated bases. A Deteriorating Security Situation Continues to Hamper Reconstruction Efforts

The security situation continues to deteriorate, impeding the management  and execution of reconstruction efforts. For example, the State Department  has reported that the number of trained and equipped Iraqi army and  police forces has increased from about 174,000 in July 2005 to about  323,000 in December 2006. For example, the number of Iraqi army  battalions in the lead for counterinsurgency operations has increased from  21 in March 2005 to 89 in October 2006. Understanding the true capabilities of the Iraqi security forces is essential  for the Congress to make fully informed decisions in connection with its  authorization, appropriations, and oversight responsibilities. The aggregate nature of these reports, however, does not provide  comprehensive information on the capabilities and needs of individual  units. This information is found in unit-level Transition Readiness  Assessment (TRA) reports. The Iraqi Government Currently Lacks the Capacity to Sustain and Continue Reconstruction and Security Efforts

While the United States has spent billions of dollars rebuilding the  infrastructure and developing Iraqi security forces, U.S. and World Bank  assessments have found that the Iraqi government’s ability to sustain and  maintain reconstruction efforts is hindered by several factors, including  the lack of capacity in Iraq’s key ministries and widespread corruption,  and the inability of the Iraqi government to spend its 2006 capital budget  for key infrastructure projects. Iraqi government institutions are  undeveloped and confront significant challenges in staffing a competent,  non-aligned civil service; using modern technology and managing  resources effectively; and effectively fighting corruption. According to U.S.  officials, 20 to 30 percent of the Ministry of Interior staff are ghost  employees. Further, corruption in Iraq is reportedly widespread and poses a major  challenge to building an effective Iraqi government and could jeopardize  future flows of needed international assistance. Unclear budgeting and procurement rules  have affected Iraq’s efforts to spend capital budgets effectively and  efficiently, according to U.S. officials. While the Ministry of Oil’s  $3.5 billion 2006 capital project’s budget targeted key enhancements to the  country’s oil production, distribution, and export facilities, as of August  2006, the ministry had spent less than 1 percent of these budgeted funds. Furthermore, the U.S. and the international community will need to  support the Iraqi government’s efforts to enhance its capacity to govern  effectively and efficiently if it is to make a positive difference in the daily  lives of the Iraqi people.
Why GAO Did This Study

The Department of Defense (DOD) has relied extensively on contractors to undertake major reconstruction projects and provide support to its deployed forces, but these efforts have not always achieved desired outcomes. Further, the Iraqi government must be able to reduce violence, sustain reconstruction progress, improve basic services, and make a positive difference in the daily lives of the Iraqi people. This statement discusses (1) factors affecting DOD's ability to promote successful acquisition outcomes on its contracts for reconstruction and for support to deployed forces in Iraq, (2) the deteriorating security situation and the capabilities of the Iraqi security forces, and (3) issues affecting the Iraqi government's ability to support and sustain future reconstruction progress. The testimony is based upon our work on Iraq reconstruction and stabilization efforts, DOD contracting activities, and DOD's use of support contractors spanning several years. This work was conducted in accordance with generally accepted government auditing standards.

What GAO Found

The challenges faced by DOD on its reconstruction and support contracts often reflect systemic and long-standing shortcomings in DOD's capacity to manage contractor efforts. Such shortcomings result from poorly defined or changing requirements, the use of poor business arrangements, the absence of senior leadership and guidance, and an insufficient number of trained contracting, acquisition and other personnel to manage, assess and oversee contractor performance. In turn, these shortcomings manifest themselves in higher costs to taxpayers, schedule delays, unmet objectives, and other undesirable outcomes. For example, because DOD authorized contractors to begin work before reaching agreement on the scope and price of that work, DOD paid millions of dollars in costs that were questioned by the Defense Contract Audit Agency. Similarly, DOD lacks visibility on the extent to which they rely on contractors to support their operations. When senior military leaders began to develop a base consolidation plan, officials were unable to determine how many contractors were deployed and therefore ran the risk of over- or under-building the capacity of the consolidated bases. U.S. reconstruction efforts also continue to be hampered by a security situation that continues to deteriorate. Although the number of trained and equipped Iraqi security forces increased to about 323,000 in December 2006 and more Iraqi Army units have taken the lead for counterinsurgency operations, attacks on coalition and Iraqi security forces and civilians have all increased. Aggregate numbers of trained and equipped Iraqi forces, however, do not provide information on the capabilities and needs of individual units. GAO has made repeated attempts to obtain unit-level Transition Readiness Assessments (TRAs) without success. This information is essential for the Congress to make fully informed decisions in connection with its authorization, appropriations, and oversight responsibilities. As the U.S. attempts to turn over its reconstruction efforts, the capacity of the Iraqi government to continue overall reconstruction progress is undermined by shortfalls in the capacity of the Iraqi ministries, widespread corruption and the inability to fund and execute projects for which funds were previously budgeted. Iraqi government institutions are undeveloped and confront significant challenges in staffing a competent, nonaligned civil service; using modern technology; and managing resources and personnel effectively. For example, according to U.S. officials 20 to 30 percent of the Ministry of Interior staff are "ghost employees" whose salaries are collected by other officials. Further, corruption in Iraq poses a major challenge to building an effective Iraqi government and could jeopardize future flows of needed international assistance. Unclear budgeting and procurement rules have affected Iraq's efforts to spend capital budgets effectively and efficiently, according to U.S. officials. At the Ministry of Oil, for example, less than 1 percent of the $3.5 billion budgeted in 2006 for key enhancements to the country's oil production, distribution, and export facilities, had been spent as of August 2006.