<DOC>
[110th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:44912.wais]
DEFENSE BASE ACT INSURANCE: ARE TAXPAYERS PAYING TOO MUCH?
=======================================================================
HEARING
before the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
MAY 15, 2008
__________
Serial No. 110-83
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on May 15, 2008..................................... 1
Statement of:
Ginman, Richard, Deputy Director for Defense Procurement and
Acquisition Policy, Office of the Deputy Under Secretary of
Defense; Shelby Hallmark, Director, Office of Workers'
Compensation Programs, U.S. Department of Labor; William H.
Moser, Deputy Assistant Secretary of State for Logistics
Management, U.S. Department of State; James C. Dalton,
Chief of Engineering and Construction, U.S. Army Corps of
Engineers, Department of the Army; Joseph P. Mizzoni,
Deputy Auditor General for Acquisition and Logistics, U.S.
Army Audit Agency; and John K. Needham, Director,
Acquisition and Sourcing Management Issues, U.S. Government
Accountability Office...................................... 31
Dalton, James C.......................................... 61
Ginman, Richard.......................................... 31
Hallmark, Shelby......................................... 41
Mizzoni, Joseph P........................................ 68
Moser, William H......................................... 55
Needham, John K.......................................... 77
Letters, statements, etc., submitted for the record by:
Dalton, James C., Chief of Engineering and Construction, U.S.
Army Corps of Engineers, Department of the Army, prepared
statement of............................................... 63
Davis, Hon. Tom, a Representative in Congress from the State
of Virginia, prepared statement of......................... 28
Ginman, Richard, Deputy Director for Defense Procurement and
Acquisition Policy, Office of the Deputy Under Secretary of
Defense, prepared statement of............................. 34
Hallmark, Shelby, Director, Office of Workers' Compensation
Programs, U.S. Department of Labor, prepared statement of.. 43
Mizzoni, Joseph P., Deputy Auditor General for Acquisition
and Logistics, U.S. Army Audit Agency, prepared statement
of......................................................... 70
Moser, William H., Deputy Assistant Secretary of State for
Logistics Management, U.S. Department of State, prepared
statement of............................................... 57
Needham, John K., Director, Acquisition and Sourcing
Management Issues, U.S. Government Accountability Office,
prepared statement of...................................... 79
Waxman, Chairman Henry A., a Representative in Congress from
the State of California:
Staff memorandum......................................... 4
Prepared statement of.................................... 20
DEFENSE BASE ACT INSURANCE: ARE TAXPAYERS PAYING TOO MUCH?
----------
THURSDAY, MAY 15, 2008
House of Representatives,
Committee on Oversight and Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Henry A. Waxman
(chairman of the committee) presiding.
Present: Representatives Waxman, Tierney, Watson, Cooper,
Sarbanes, Davis of Virginia, Duncan, and Issa.
Staff present: Phil Barnett, staff director and chief
counsel; Karen Lightfoot, communications director and senior
policy advisor; David Rapallo, chief investigative counsel;
Brian Cohen, senior investigator and policy advisor; Margaret
Daum, counsel; Mark Stephenson and Denise Wilson, professional
staff members; Earley Green, chief clerk; Jen Berenho Iz,
deputy clerk; Caren Auchman and Ella Hoffman, press assistants;
Leneal Scott, information systems manager; Sam Buffone, William
Ragland, Lauren Belive, and Miriam Edelman, staff assistants;
Larry Halloran, minority staff director; Jennifer Safavian,
minority chief counsel for oversight and investigations; Mason
Alinger, minority legislative director; John Brosman, minority
senior procurement counsel; Ashley Callen, minority counsel;
Emile Monette and Benjamin Chance, minority professional staff
members; Patrick Lyden, minority parliamentarian and member
services coordinator; and Ali Ahmad, minority deputy press
secretary.
Chairman Waxman. The meeting of the committee will come to
order.
One of the primary issues this committee has tackled, this
Congress, has been the waste and abuse of taxpayers' dollars
from crop insurance in Kansas to an Air Force base on Ramstein,
Germany. We have held over a dozen hearings into Federal
programs that don't seem to be using taxpayer money wisely.
Today and next week we turn back to Iraq. Our subject today
may seem obscure, insurance payments under the Defense Base Act
of 1941, but the costs to the taxpayers are high.
The Defense Base Act requires contractors operating in Iraq
and Afghanistan to purchase Workers' Compensation insurance for
their employees. Three agencies--the State Department, USAID,
and the Corps of Engineers--have approached this requirement
responsibly. They conducted a competition to select an
insurance carrier to offer this insurance at low rates to their
contractors.
The Defense Department has taken a completely different
approach. It allows contractors to negotiate their own
individual insurance contracts. This approach has produced a
boondoggle for the insurance companies and the private
contractors and saddled the taxpayer with enormous costs.
Typically, insurers offering Workers' Compensation pay out
as much in claims and expenses as they take in through
premiums. The carriers make their real money off of investment
returns they earn during the interval between when they receive
premiums and pay claims and expenses.
This has been the experience of the State Department,
USAID, the Corps of Engineers. In fact, the company that won
these contracts, CNA, has actually paid out 8 percent more in
claims and expenses than it has received in premiums.
But these contracts represent only 10 percent of the
insurance market in Iraq and Afghanistan. Ninety percent of the
DBA market is controlled by the Defense Department, and the
experience in the DOD market has been completely different.
Under the DOD approach, private contractors negotiate with
private insurers, but bill the taxpayers for the costs. This
arrangement has been exceptionally lucrative for the private
insurers and the contractors. Over the last 5 years, the four
largest private insurers have made underwriting profits of
nearly 40 percent. That is almost $600 million in profits.
The LOGCAP troop support contract--the largest single
contract in Iraq--illustrates what is going on. As a series of
charts will illustrate--and we will have them on the screen to
the right and the left--KBR paid an insurance company, AIG,
$284 million for Workers' Compensation coverage. Since KBR's
contract is a cost-plus contract, this $284 million premium
plus a markup for KBR of up to $8 million gets billed to the
taxpayers bringing the total costs to the taxpayers of $292
million.
Out of this amount, just $73 million actually goes to
injured contractors, and AIG and KBR pocket over $100 million
as profit.
Well, this is really disgraceful. The taxpayer is paying
nearly $300 million to deliver less than $75 million in
benefits to injured contractors. Rube Goldberg could not design
a more inefficient way to help employees wounded or injured in
Iraq.
The Defense Department has argued that the fact that Iraq
is a war zone justified the high costs of the insurance
program, but under the Defense Base Act, the taxpayer, not the
insurance company, has to pay the costs when a contractor is
wounded in action. The insurance companies only pay for the
types of injuries that could occur at any work site.
What makes the situation even worse is the people this
program is supposed to benefit--the insured employees working
for contractors. They have to fight the insurance company to
get their benefits. Delays and denials in paying claims are the
rule. Audit after audit has said that the Defense Department
model doesn't work, but still the Defense Department won't
change.
When Congress passed a law in 2006 requiring the Defense
Department to rethink its approach, the Department reported
that it would be too expensive to collect the necessary data
and ``there are no compelling procurement reasons for DOD to
initiate any efforts.''
My staff prepared an analysis of the Defense Base Act,
which has been distributed to the Members as a supplemental
memo, and based on new data from the insurers, it identified
600 million reasons why the Defense Department should care.
That is the amount of the excessive profits that insurance
companies have earned at taxpayer expense in just 5 years.
I would ask that this memorandum and the documents it cites
to be made part of today's record. Without objection that will
be the order.
[The information referred to follows:]
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Chairman Waxman. In the course of our hearings into
Government waste, fraud, and abuse, we have learned to
recognize the recipe for wasteful government spending, and all
the key ingredients are here: an obscure Federal program, a
procurement approach that leaves Federal taxpayers, not private
contractors, liable for the biggest risks, and officials who
ignore warning after warning.
We need to stop this flagrant abuse of taxpayers' dollars,
and this hearing is an important step in this process.
[The prepared statement of Chairman Henry A. Waxman
follows:]
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Chairman Waxman. Mr. Davis, I want to recognize you for an
opening statement.
Mr. Davis of Virginia. Thank you, Mr. Chairman, for holding
this hearing on the Defense Base Act Insurance Program. The DBA
provides vital insurance coverage for the brave men and woman
employed by the companies performing critical parts of our
Government's overseas operations around the globe.
This once obscure program has dramatically expanded since
2003 with an unprecedented number of contractors working under
wartime conditions supporting our efforts in both Iraq and
Afghanistan. Thousands of contracts and subcontracts throughout
the world are subject to DBA insurance requirements.
Agencies and the contractors use several models to acquire
the mandatory coverage. In general, Defense Department
contractors purchase DBA insurance on their own and recover
their costs under the terms of the contract. In contrast, the
Department of State preselects one primary insurance carrier to
provide the DBA insurance at a fixed rate for all of its
various covered contracts.
A few years ago the Army Corps of Engineers launched a
pilot program based on the State Department model, and the
Corps is here today to discuss that trial effort. Recently, the
Congressional Budget Office suggested DOD adopt that single
source method, but that approach may not be a panacea.
Efficiencies and cost controls possible at lesser levels of
operations may be overwhelmed by the vastly increased scale of
the Pentagon's DBA responsibilities, which dwarf those of the
State and the Corps both in size and the diversity of
requirements. The CBO acknowledged such in an arrangement that
presents a number of challenges.
It is not clear that any insurance provider would be
willing to underwrite DBA insurance for all DOD contractors, or
the contractors who would be willing to participate on those
terms. Concentrating so large a portion of current DBA coverage
in the hands of one carrier could have the perverse effect of
driving carriers out of the market, the resulting loss of
competition risks making it easier to raise rates. The cost of
initiating and administering such a centralized DOD-run program
could further endanger any savings for any preselected master
contract.
Mandating a single source for all DOD contractors to obtain
this insurance may in fact result in economies of scale and
lower cost for the insurance in Iraq and Afghanistan where
risks are higher, but it doesn't take into account the myriad
places around the globe where Federal contracts are performed,
and the risks are much lower.
In those places where operational risks are lower, the cost
of DBA insurance will almost certainly go up under a single-
source contract. The effect is like pushing on an inflated
balloon. If you squeeze the balloon in one place, a bulge has
to pop out somewhere else.
This is a good opportunity for us to conduct some real
oversight into whether we are spending the taxpayers' dollars
in the most costs-effective manner. If there is a better,
cheaper way to obtain DBA insurance, we need to pursue that
route.
However, Mr. Chairman, I think it is important we conduct
balanced oversight, and that means bearing in mind this program
covers thousands of contractors performing work in almost every
country in the world. Viewing the entire DBA program through
the lens of one audit of one contractors, even if the
contractor is KBR, a former Halliburton subsidiary, risks
missing the larger picture.
The problem appears to be as much with Government controls
and oversight of this increasingly expensive program as it does
with any alleged contractor overcharges. Oversight focused on
the general case, not the outlier, is far more likely to yield
reforms that lead to meaningful savings.
Thank you again, and we look forward to today's testimony.
[The prepared statement of Hon. Tom Davis follows:]
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Chairman Waxman. Thank you very much, Mr. Davis.
Mr. Cooper.
Mr. Cooper. Thank you, Mr. Chairman. I want to congratulate
you and the committee for the latest in the remarkable series
of hearings that really benefit the taxpayer.
Taxpayers are really upset that they don't feel that they
are getting more value for their taxpayer dollars. The latest
book reviewed in the Wall Street Journal said that, on average,
taxpayers get about 24 cents of value for every dollar they pay
in taxes. That obviously means 76 cents in something else, and
a lot of that is waste, fraud, and abuse.
So I appreciate your looking into this little known area of
the law. I think that if this were used as a case study in
business school in pretty much any business school in America,
the students would be appalled.
I have been teaching at Vanderbilt Business School now for
over a decade, and I think the students at the ON School of
Management in Nashville, TN, would be able to craft a much
better system than the one we have today.
So let's get the facts out, and let's see how we can help
the taxpayer. Thank you, Mr. Chairman.
Chairman Waxman. Thank you, Mr. Cooper.
Ms. Watson.
Ms. Watson. Thank you, Mr. Chairman, for holding today's
hearing concerning the importance of safeguarding taxpayers
from incurring the costs of high insurance premiums related to
the Defense Base Act.
As you all know, DBA insurance is required for all private
contractors and subcontractors who do business overseas with
any Government agency currently. Our Nation's state of affairs
has us occupying Iraq and Afghanistan where we rely heavily on
large numbers of Government contractors which, consequently,
has increased the amount spent on DBA insurance by the hundred
millions of dollars.
However, both the Federal Government and insurers do accept
the risk of injury or death to contractors, but the Government
absorbed the entire cost of injury or death if it is related to
war risk hazards.
Since the start of the wars in Afghanistan and Iraq, there
have been 1,292 contractors killed and another 9,610 wounded as
a result of their employment with various Government agencies,
although DBA insurance is meant to protect contractors and
their families by providing death, disability, and medical
benefits for injuries sustained during the course of
employment. This committee has found that adequate controls
weren't in place to ensure the cost of DBA insurance were
minimized.
In order to make sure that the taxpayer dollar is used
wisely and effectively, potential cost-saving measures should
be explored to relieve the burden on the taxpayer from paying
unusually high and unfair insurance premiums.
Thank you, Mr. Chairman. I yield back.
Chairman Waxman. Thank you very much, Ms. Watson.
Mr. Sarbanes, do you want to pass on the opening statement?
Mr. Sarbanes. Yes.
Chairman Waxman. We will get to the witnesses. Thank you.
We are pleased to have the following people here to testify
before us: Mr. Richard Ginman, Deputy Director of Defense
Procurement and Acquisition Policy, U.S. Department of Defense;
Mr. Shelby Hallmark, Director of Workers' Compensation
Programs, U.S. Department of Labor; Mr. William H. Moser,
Deputy Assistant Secretary of Bureau for Administration
Logistics Management, U.S. Department of State; Mr. James
Dalton, P.E., Chief, Engineering and Construction, U.S. Corps
of Engineers; Mr. Joseph P. Mizzoni, Deputy Auditor General for
Acquisition and Logistics, U.S. Army Audit Agency; and Mr. John
K. Needham, Director, Acquisition and Sourcing Management
Issues, Government Accountability Office.
We are pleased to welcome all of you to our hearing today.
It is the practice of this committee that all witnesses that
testify before us do so under oath, so if you have no
objections, I would like to ask you to please stand and raise
your right hands.
[Witnesses sworn.]
Chairman Waxman. Thank you. The record will indicate that
each of the witnesses has answered in the affirmative.
Your prepared statements that have been submitted to us
will be in the record in full. We would like to ask, if you
would, to try to limit the oral presentation to around 5
minutes. We have a clock. When it is turned on, it will be
green for 4 minutes, and then turn yellow for 1 minute, and
after 5 minutes will be red. When you see the red light, it
would be a good time to summarize and conclude.
Mr. Ginman, we are pleased to have you, and there is a
button on the base of the mic, be sure it is on. We are looking
forward to hearing from you.
STATEMENTS OF RICHARD GINMAN, DEPUTY DIRECTOR FOR DEFENSE
PROCUREMENT AND ACQUISITION POLICY, OFFICE OF THE DEPUTY UNDER
SECRETARY OF DEFENSE; SHELBY HALLMARK, DIRECTOR, OFFICE OF
WORKERS' COMPENSATION PROGRAMS, U.S. DEPARTMENT OF LABOR;
WILLIAM H. MOSER, DEPUTY ASSISTANT SECRETARY OF STATE FOR
LOGISTICS MANAGEMENT, U.S. DEPARTMENT OF STATE; JAMES C.
DALTON, CHIEF OF ENGINEERING AND CONSTRUCTION, U.S. ARMY CORPS
OF ENGINEERS, DEPARTMENT OF THE ARMY; JOSEPH P. MIZZONI, DEPUTY
AUDITOR GENERAL FOR ACQUISITION AND LOGISTICS, U.S. ARMY AUDIT
AGENCY; AND JOHN K. NEEDHAM, DIRECTOR, ACQUISITION AND SOURCING
MANAGEMENT ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF RICHARD GINMAN
Admiral Ginman. Chairman Waxman, Ranking Member Davis,
distinguished members of the committee, thank you for the
opportunity to appear before you today to discuss Defense Base
Act insurance. I am Dick Ginman, and I serve as Deputy
Director, Defense Procurement of Acquisition Policy in the
Office of the Under Secretary of Defense for Acquisition,
Technology, and Logistics. I have more than 37 years in
government and commercial business in a variety of acquisition
positions.
Before assuming this job, I held several private sector
positions, including vice president of a line of business at
General Dynamics. I also served in the U.S. Navy for 30 years,
retiring as a Rear Admiral, Supply Corps.
In the past, DOD permitted its overseas contractors to
purchase the required DBA insurance from any insurance company
approved for this purpose by the Department of Labor. In our
April 1996 Report to Congress, we compared the State
Department's and USAID's DBA rates to a sampling of rates paid
by DOD contractors. We found that in most cases our rates were
lower than those paid by State and USAID, sometimes
significantly lower.
We found that many firms purchased DBA insurance at very
favorable rates, as riders to their regular State-side Workers'
Compensation insurance programs. In addition, except for a few
isolated instances DOD contractors were not having problems
obtaining DBA coverage.
We were concerned that the umbrella contracting approach
did not provide an incentive for improving a company's safety
record. Since all companies pay the same rate, there is no
incentive for a company to be proactive about keeping rates
down through better safety records, and thus be more
competitive in the marketplace.
Further, with a single contract with one rate, we would not
be able to take advantage to the lower premiums available to
industry for the majority of areas to which we were sending
contractors at the time. After 9/11 and during the beginning of
the Iraq War, however, we received complaints from companies
doing business in Iraq concerning DBA insurance. They
complained that the rates for the insurance had increased
significantly going from $4 to over $20 per $100 of employee's
salary, and in some cases they could not obtain DBA insurance
at all.
Also, minimum premium payments of $15,000 to $25,000
dollars hit small businesses particularly hard. To determine if
a single mandatory contract approach for DBA would provide cost
savings for DOD, we sponsored a pilot program with the U.S.
Army Corps of Engineers. Although the Corps' pilot program was
competed, only CNA International submitted an offer. CNA's
initial contract established worldwide DBA insurance rates of
$5 to $8.50 per employee salary for services and construction,
respectively. which were below the range of $10 to $21 GAO
cited for contract workers in Iraq in their 2005 Report.
While the Corps found that several small and local
businesses were now able to obtain lower DBA insurance rates
for Iraq and obtained insurance where they were previously
denied, the Corps also discovered that in certain non-war zone
areas, the umbrella DBA rates were sometimes higher than what
individual contractors were previously obtaining. This is
expected under the concept of risk-pooling where lower risk
areas would pay a higher premium than the higher risk areas.
In April 2008, CNA and the Corps agreed to a contract
modification setting up two additional labor categories for
security and for aviation with materially higher rates. This
occurred because CNA was incurring significant losses in the
war zone such as Iraq and that it could no longer continue
contract performance at the current rates. They agreed to a
$10.30 and a $17.50 rate per $100 of employee's salary for
security in aviation, respectively, which are similar to the
same rates at State.
A pilot program goal is to provide data to build and to
present to our office in the Army a formal business case to
determine if the Pilot should be expanded Army or DOD-wide. To
help the Corps develop such a case, the Army Audit Agency
recently agreed to review the results of the pilot program to
determine if it warranted permanent placement at the Corps and
warrant further extension into the Army.
To build this business case, the Department will pursue
collecting DBA data from the top 50 defense contractors. Once
Army's audit review is complete and we have collected the
additional data, the Corps will develop the business case, and
we will review the results to determine the Department's next
steps.
Mr. Chairman, I thank the committee for your interest in
our efforts, and we would be happy to address any questions.
[The prepared statement of Admiral Ginman follows:]
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Chairman Waxman. Thank you very much. We have questions,
but we will wait until all the witnesses have testified first.
Mr. Hallmark.
STATEMENT OF SHELBY HALLMARK
Mr. Hallmark. Good morning, Mr. Chairman, and Ranking
Member Davis and other Members. I am Shelby Hallmark. I am the
Director of OWCP, the Office of Workers' Compensation Programs
at the Department of Labor. I have served in that position, or
its Deputy, since 1990.
The Longshore and Harbor Workers' Compensation Program is
the smallest of OWCP's programs. Our Longshore Division
oversees the Defense Base Act enacted, as we know, in 1941 to
provide Workers' Compensation protections for employees of
Federal contractors overseas. Our Federal Employees'
Compensation Division runs the War Hazards Compensation Act,
providing Federal reinsurance for DBA losses incurred as a
result of war.
The DBA is a private sector insurance driven Workers'
Compensation system similar to those run by each State. DOL's
role is oversight. We assure that Federal contractors overseas
procure the necessary DBA insurance coverage. We oversee
insurers' handling of claims activities and issuance of
payments, and we resolve disputes between insurers and
employees when they arise.
DOL has no authority to regulate insurance premiums under
the Longshore and DBA statutes. In effect, the system is self-
regulating. The market determines premiums, and purchasers,
contractors, or Federal contracting agencies can negotiate for
better prices. Most claims are resolved without Federal
intervention.
In 2003, contracting subject to DBA rose dramatically. DOL
launched a major effort to educate the many players in the
system, insurers, contracting agencies, contractors, and
attorneys, defense and plaintiff, on their roles and
responsibilities. We sponsored numerous seminars and round
tables aimed at clarifying requirements, addressing the special
problems arising in the Middle East environment, and sharing
best practices.
Although all participants in the DBA system were challenged
by the unique difficulties presented in Iraq and Afghanistan,
we believe compliance assistance effort and the efforts of our
stakeholders have improved the extension of DBA coverage and
the delivery of services to workers.
Two of the three major insurers have opened claims
processing offices in the Middle East to over come distance,
language, and cultural barriers, and have translated forms and
brochures into Arabic. While claims processing is elongated due
to distance and war zone conditions, overall outcomes are
improving. Contracting agencies have acted to ensure that
contractors and subcontractors have DBA coverage, and claims
filing compliance has risen.
The volume of DBA claims from Iraq and Afghanistan rose
quickly from 2003 through 2007. DOL staff are acutely aware of
the significant numbers of both American and foreign citizens
injured or killed in the course of DBA employment, and our
staff have worked extremely hard to ensure that the program
functions as intended for these workers.
While it appears that Iraq/Afghanistan claimants are
somewhat less successful in obtaining benefits than domestic
claimants in the Longshore program, we believe this discrepancy
is largely explained by the unique circumstances involved in
implementing an insurance program in a conflict zone where just
finding and communicating with injured workers can be a huge
challenge.
I am proud to note, however, that Iraq/Afghanistan cases
that do enter DOL's dispute resolution system receive very
comparable outcomes, indicating that our efforts to reach out
to these claimants are working.
My written testimony provides examples of complex cases
involving multiple vests of foreign nationals in which DOL was
able to achieve relatively rapid payment of the large majority
of the families involved, despite significant obstacles. Our
New York office worked very hard to get benefits to scores of
Nepalese, Iraqi, and Turkish families in just these three
cases.
Mr. Chairman, you voiced a specific interest in post-
traumatic stress disorder, PTSD cases. While the major insurers
have generally handled DBA claims the same way they do domestic
Workers' Compensation claims, PTSD presents challenges that are
not normally faced in Workers' Compensation.
In 2006, we determined that additional focus was needed in
this area, specifically in DBA community. Relatively clear-cut
PTSD cases were being reported but not getting appropriate
resolutions swiftly enough. Employers were not providing
counseling services that military members get, and, of course,
these workers did not receive VA services.
We, of course, push for proper resolutions in the
individual cases we became aware of, but we also took action
systemically working closely with insurers to raise awareness
of PTSD issues and encourage best practices.
My written testimony outlines OWCP's implementation of the
War Hazards Compensation Act. This reinsurance program, paid
from Federal entitlement funds, is being administered
effectively. We have received less than 300 claims for
reimbursement from insurers so far. We expect many more to be
filed in the coming years.
Thank you for this opportunity, and I will be glad to
answer questions.
[The prepared statement of Mr. Hallmark follows:]
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Chairman Waxman. Thank you very much, Mr. Hallmark.
Mr. Moser.
STATEMENT OF WILLIAM MOSER
Mr. Moser. Chairman Waxman, Representative Davis, and
distinguished members of the committee, thank you for the
opportunity to appear before you today to discuss Defense Base
Act insurance and the War Hazards Compensation Act program. As
the Deputy Assistant Secretary for Logistics Management, the
Department of State's central contracting authority reports to
me, and I am happy to address the Department of State's
contracting for DBA insurance.
The Defense Base Act of 1941 mandates that Federal prime
and subcontractors provide and maintain a broad form of
Workers' Compensation insurance coverage for their personnel
working on construction and service contracts outside the
United States. The cost of DBA insurance is ultimately borne by
the contracting agency, often, as we have heard here today, as
a reimbursable cost. The Department's goal, however, is to
ensure that all of our contractors, both large and small, are
able to obtain legally compliant coverage at a manageable cost.
DBA insurance covers U.S. citizens as well as host country
and third country nationals who are working under State
Department contracts. A waiver of DBA insurance is often
available for local national employees who are employed under a
Department contract if they are covered by a local host country
Workers' Compensation Program that provides effective
compensation for work-related illnesses and injuries.
In Iraq and Afghanistan, however, the lack of an effective
local worker compensation program requires that DBA coverage be
extended to local nationals. All Iraqi and Afghani citizens
working under State Department contracts in these countries are
covered under the DBA. When any employee working under a
Department of State contract is injured or killed, a
determination must be made by the insurance carrier and, if
there is a dispute the Department of Labor, as to the reason
for injury or death and whether it might be covered by the DBA.
The Department of Labor, subsequently, will determine
eligibility for reimbursement under the War Hazards
Compensation Act program, which we are very proud to work with.
Prior to 1990, the Department of State required contractors
to obtain DBA insurance independently, and rates varied based
on the contractor's number of employees, claims history, and
work location. Small businesses with limited overseas
experience often found it difficult to obtain DBA insurance, or
were required to pay very high premiums. The people that were
working in our authority at that time really talked about how
many times they had to pay an entry fee, essentially, to get
DBA coverage.
In 1990 a State Department Office of Inspector General
audit concluded that the Department's DBA insurance costs could
be significantly reduced if a blanket insurance contract were
awarded to a single insurance provider. Subsequently, in an
effort to control costs and provide uniform DBA insurance rates
and coverage for all our contractors, both large and small, the
Department competitively awarded a multi-year contract in 1991
to CIGNA Property and Casualty Insurance Co.
The follow-on DBA insurance contract was completed in 2000
with four offerors competing: CIGNA, AIU, Ace International,
and CNA. The contract was awarded to CNA in 2001 and remains in
place today. So this is the same contract that we have had
since 2001, is the one we are using today in Iraq and
Afghanistan.
This blanket contract business model has stabilized rates
from 2000 to 2007. Premium rates were unchanged: $3.87 to $6.45
per $100 of employee salary for services and $5 to $8.34 of
employee salary for construction. In July 2007, the CNA
contract was extended for 1 year with two additional specific
service categories, which Mr. Ginman has also addressed,
services without aviation and security services with aviation.
Due to the high risk in claims associated with these
categories, CNA proposed higher rates for these categories:
$10.30 per 4100 of employee salary for security services
without aviation and $17.50 for services with aviation.
These rates became effective with the July extension,
however, since most contractor policies are not renewed until
June 2008, the effect of these rates have not yet been realized
by our contractors or by the Department.
In April 2008, the Department issued a synopsis in
FedBizOpps announcing the availability of a fully competitive
solicitation to continue to provide DBA insurance coverage.
That solicitation is expected to be issued later this month.
Mr. Chairman, thank you and the members of the committee
for your interest in DBA insurance, and I would be happy later
to address your questions.
[The prepared statement of Mr. Moser follows:]
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Chairman Waxman. Thank you very much, Mr. Moser.
Mr. Dalton.
STATEMENT OF JAMES C. DALTON
Mr. Dalton. Chairman Waxman, and members of the committee,
thank you for the opportunity to testify before you today
concerning the methods used by the Corps of Engineers to reduce
DBA insurance costs, to the extent which other methods are used
and how successful they have been, and the lessons learned from
these efforts.
Due to the increase in DBA insurance in 2003, the Corps of
Engineers and the Office of the Secretary of Defense agreed to
conduct a Centrally Managed DBA Insurance pilot program,
centralizing the management and acquisition of Defense Base Act
insurance for Corps contracts worldwide, and modeled the USAID
and the Department of State.
The pilot objectives were the following: make DBA insurance
affordable through economies of scale; leverage lessons learned
under DBA insurance undertaken by USAID and the State
Department; pool the risk; centrally manage DBA insurance; and
develop a business case analysis.
This pilot, which is a series of two contracts, made the
DBA insurance carrier the party responsible for dealing
directly with Corps contractors requiring DBA insurance during
performance of their contract. Insurance rates were based on
category of labor and considered all risks and all possible
geographic locations of contract performance, including hostile
and non-hostile environments and safety considerations.
The pilot provided a single entry point for coverage and
access to DBA insurance for all Corps contractors and
subcontractors at all tiers, no matter the business size or
location of the firm requiring insurance. Insurance premiums
were paid directly to the insurance carrier based on the rates
in the Corps DBA insurance contract.
Under the pilot, there were no minimum premiums paid by
contract. When contractors independently acquired DBA insurance
coverage, they could expect to pay a minimum premium of $15,000
to $25,000 per contract. This adversely affected overall
contract pricing and likely precluded small and local business
firms from competing on supporting Global War on Terrorism
programs.
The first Corps DBA contract was solicited on a competitive
best value basis and was awarded in November 2005 to the sole
offeror, CNA insurance. The terms of the contract was 1 year
and provided a coverage for services and construction labor at
a premium of $5 per $100 of employee labor for services, and
$8.50 per $100 for construction labor. These rates were well
below the 2005 GAO Report which stated the contractors
performing work in Iraq were paying DBA insurance rates between
$10 and $21 per $100 of employee salary cost.
The Phase I contract premiums proved lower than the GAO's
report, and the Corps continued to a Phase II contract to
gather additional data for the business case. The Phase II
pilot contract was competitively solicited on the lowest price
technically acceptable basis, and again one offer was received
from CNA Insurance. The proposed Phase II premiums continued to
decline with the CNA premiums now at $3.50 per $100 for
services, and $7.25 per $100 for employee labor costs on
construction.
A Phase II pilot contract was awarded to CNA on March 31,
2007. During performance of the contract, two additional labor
categories were added for security and aviation. The contract
also included standard insurance industry definitions of all
labor categories. The standard definitions clarify the labor
category applicable to the work performed in the contract and
the rate applied for insurance.
In March 2008, the contract was extended with the CNA
insurance until 2008 to allow the Corps to solicit and obtain
an award a follow-on DBA contract.
A major success of the Corps' centralized DBA insurance is
the ability to reach all tiers of subcontractors. The smallest
subcontractor in Iraq has access to DBA insurance.
To close, I would like to thank you once again, Chairman
Waxman, for allowing the Corps the opportunity to appear before
this committee today. I will be glad to answer any questions
you or the members of the committee may have.
[The prepared statement of Mr. Dalton follows:]
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Chairman Waxman. Thank you very much, Mr. Dalton.
Mr. Mizzoni.
STATEMENT OF JOSEPH P. MIZZONI
Mr. Mizzoni. Mr. Chairman, Mr. Davis, and distinguished
members of the committee, thank you for the opportunity to be
here today to discuss our work related to Defense Base Act
insurance for LOGCAP operations. I have submitted my full
statement to the committee, and I ask that it be made part of
the hearing record.
I have been with the U.S. Army Audit Agency for 31 years
and became the Deputy Auditor General for Acquisition and
Logistics in October 2005. The Agency is the Army's internal
audit organization, and throughout our history we have deployed
with our troops in Vietnam and Bosnia, during Desert Shield and
Desert Storm, and lately in support of Operations Iraqi Freedom
and Iraqi Enduring Freedom.
In December 2004, General Casey, then Commander of the
Multinational Force Iraq, asked us to help him reduce the
overall costs of LOGCAP operations supporting OIF. To help
General Casey achieve his goal, we established two audit
objectives. These objectives were to determine if overall
management of the LOGCAP program was adequate and determine if
LOGCAP operations was providing the needed services in a cost-
effective manner.
Our LOGCAP audits have covered many topics to include
Defense Base Act insurance. DBA insurance is basically Workers'
Compensation insurance. It provides benefits to contractor and
subcontractor employees who are injured or killed as the result
of normal working conditions while working on U.S. Government-
financed contracts performed outside the United States. Because
DBA insurance is required by law and because a LOGCAP contract
is primarily a cost-reimbursable contract, the cost of this
insurance is openly paid by the U.S. Government.
The objective of DBA audit was to determine if adequate
controls were in place to minimize costs paid for DBA insurance
under the LOGCAP contract. We concluded that the Army was at
risk at paying more than needed. Here is what we found: DBA
insurance represented a significant cost of the LOGCAP
contract. The LOGCAP contractor paid about $284 million in
premiums for DBA insurance between fiscal year 2003 and fiscal
year 2005. The premiums increased steadily each year from about
$5 million in fiscal year 2003 to about $165 million in fiscal
year 2005.
DBA rates, which were a percentage of the contractor's
total payroll costs for both contractor and subcontractor
employees, increased substantially between fiscal year 2003 and
fiscal year 2004. These rates then declined in fiscal year 2005
and fiscal year 2006.
The premium increases and year-to-year rate fluctuations
seemed inconsistent with the risk associated with providing
Workers' Compensation and with the contractor's good safety
record.
The estimated amount of claims expected to be paid was
substantially less than the DBA premiums the Army paid.
Excessive DBA premiums may have been paid because DBA rates are
applied against total payroll costs. However, benefits paid
under the DBA program are based on an employee's average weekly
wage and are capped by statute. Many of the contractor's
employees earned wages that exceeded the cap.
The LOGCAP contractor pays many of its employees danger pay
for working in areas such as Iraq and Kuwait. As a result, the
LOGCAP contractor paid premiums on the danger pay component of
the payroll. To address these issues, we recommended that the
Office of the Assistant Secretary of the Army for Acquisition,
Logistics and Technology use more cost-effective means of
providing Workers' Compensation insurance.
Although the Office didn't fully agree with all parts of
the recommendation, the actions it proposed met the intent of
the recommendation.
In closing, I would like to thank you once again, Mr.
Chairman, for inviting me to appear before this committee. DBA
insurance under contracts issued by the United States, we are
currently reviewing DBA insurance under contracts issued by the
U.S. Army Command in Kuwait, and we have also recently agreed
to review the cost-effectiveness of the Corps of Engineers DBA
pilot program.
We will remain responsive to Army leadership in continuing
working to provide the best possible solution to Army
challenges. I am very proud of my auditors in Southwest Asia.
Their dedication and hard work has provided valuable real-time
support to the Army.
I appreciate the opportunity to testify before you today
and would be glad to answer your questions.
[The prepared statement of Mr. Mizzoni follows:]
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Chairman Waxman. Thank you very much, Mr. Mizzoni.
Mr. Needham.
STATEMENT OF JOSEPH K. NEEDHAM
Mr. Needham. Chairman Waxman, Ranking Member Davis, and
members of the committee, thank you for inviting me here today
to discuss the Defense Base Act and GAO's observations on the
actions by the Departments of Defense and Labor, to address the
findings from our 2005 Report on DBA's implementation in Iraq.
We initiated our review of DBA in 2004 after concerns were
raised over the cost of Workers' Compensation insurance
provided under DBA. According to recent DOD data, there were
over 163,000 contractor personnel working in Iraq. We obtained
the rates spent on DBA insurance for 21 contracts held by 13
prime contractors performing work under Iraq under cost-
reimbursable contracts.
These contracts at the time represented 69 percent of U.S.
appropriated contracting dollars awarded. We selected companies
of difference sizes performing a range of services for DOD, the
Department of State, and the U.S. Agency for International
Development. We did not obtain DBA rates from subcontractors in
our review.
We were limited in what we can conclude about the cost of
DBA insurance because investigations by several States into the
practices of a number of insurance companies and brokerages
during the course of our review, raised questions over the
reliability of the information we obtained from the insurance
industry.
In April 2005, we reported that the total cost of DBA
insurance to the Government, or the extent to which Iraq
reconstruction funds were being spent on DBA insurance, could
not be calculated due in part to the difficulty of gathering
data on the large number of contractors and the multiple levels
of subcontractors performing work in Iraq.
There were wide variations in the amounts Federal agencies
were paying for DBA insurance. We reported that eight DOD prime
contractors paid from $10 to $21 per $100 of salary cost, a
rate that was significantly higher than the rates paid by the
State Department and USAID contractors, which are at that time
$2 to $5 per $100 of salary costs to their respective and self-
insurer programs.
Last, what we found was that there were challenges in
implementing the DBA insurance requirements for Iraq, such as
the lack of clarity in DBA requirements, delays in processing
claims, and difficulty in monitoring contractor compliance. As
a result of our work, Congress directed DOD to work with other
agencies to address these challenges.
Where do things stand today? As other witnesses have noted
this morning, since the Army Corps implemented its single
insurer program in December 2005, its insurance rates have
decreased from what DOD was previously paying. While DOD has
taken steps to reduce DBA insurance rates through the Army
Corps' program, it has not yet implemented similar efforts
Department-wide. DOD continues to lack reliable aggregate data
on the total cost of DBA insurance.
It should be noted that Congress directed DOD to identify
methods to collect data on DBA insurance costs in fiscal year
2006. While State, USAID, and the Army Corps can now obtain
aggregate DBA cost data for their single respective insurer
programs, DOD recently reported to us that it had not collected
this data Department-wide.
GAO has issued several reports on best practices, noting
that agencies can analyze financial data to leverage their
buying power, reduce costs, and better manage suppliers of
goods and services. This is referred to as strategic sourcing,
which calls for an organization to analyze its spending and use
that information to make more effective business decisions
about the acquisition of commodity conservatism.
As we have noted on other occasions--and it bears repeating
today--in discussing DBA insurance premiums, DOD needs to be
more strategic, as it has been in the acquisition of other
services. In short, it needs to manage the suppliers of
insurance and not have the suppliers managing DOD.
Turning to Labor's actions, Department officials told us
that they have taken steps to address several of DBA's
insurance implementation challenges that we identified in our
2005 Report. For example, GAO found that there was uncertainty
among Agency officials regarding when DBA insurance was
required as well as problems in processing claims and
monitoring compliance.
Labor officials recently told us they have been receiving
fewer questions after holding seven seminars through 2006 on
DBA insurance for contractors, insurance companies, and Agency
officials, as well as attorneys, to clarify what the DBA
requirements were. While Labor officials also noted
improvements in processing insurance claims, they still face
challenges in verifying that subcontractors in Iraq have
obtained DBA insurance.
In conclusion, Mr. Chairman, there is one overriding issue,
and that is DOD's need to manage the cost of DBA insurance
premiums. While DOD has taken steps for the Army's Corps
Insurer Program to reduce its Dod rates, it does not know what
it is spending Department-wide on such insurance. Without this
information, DOD is limited in its ability to make fully
informed decisions regarding its options for minimizing
Department-wide insurance costs and limiting its ability to
manage its suppliers strategically.
Furthermore, the lack of detailed information on these
costs makes it difficult for Congress to conduct full oversight
of the reconstruction funds.
Mr. Chairman, this concludes my statement. I thank you for
the opportunity, and I will be happy to answer any questions.
[The prepared statement of Mr. Needham follows:]
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Chairman Waxman. Thank you very much, Mr. Needham.
I want to thank all of you for your testimony. We are now
going to have questions from members of the panel, and I want
to start off those questions.
To illustrate this program which might seem very complex, I
wanted to focus my questions on a particular example. The
insurance purchased by KBR under the Army LOGCAP contract, the
LOGCAP contract is the single biggest contract in Iraq. It is
worth more than $27 billion. Halliburton's KBR Division won
this Cost Plus Contract in 2001, and this committee has raised
a number of questions about it since then.
Mr. Mizzoni, your agency, the Army Audit Agency, issued a
report about KBR's charges under the LOGCAP contract for DBA
insurance, and the committee obtained a copy of the report, and
we are making it public today. I thought your findings were
pretty astounding.
KBR hired AIG as its insurance company. Your report, page
5, says that AIG charged KBR about $284 million for DBA
insurance from----
Mr. Mizzoni. That is correct. One clarification, though,
sir. My understanding is that KBR actually did not buy the
insurance. I am not an insurance expert, but I understand that
KBR actually had to use an insurance broker in the State of
Texas, and that insurance broker then bought the insurance for
KBR.
Chairman Waxman. And did the insurance broker get a fee for
doing that, that purchase?
Mr. Mizzoni. I honestly don't know, sir.
Chairman Waxman. OK. The total cost of providing this
insurance is actually higher than the $284 million. KBR has a
Cost Plus Contract so it can add up a markup up to $8 million
on top of the $284 million premium to AIG. This makes a total
cost to the taxpayers as much as $292 million, all of which I
mentioned in my opening statement.
Your report, page 8, also says that of that $292 million
AIG will pay out about $73 million in claims after all
adjustments and reimbursements. Is that right, $73 million?
Mr. Mizzoni. That is what we found, sir, yes.
Chairman Waxman. So looking at it from a taxpayers'
perspective, the purpose of this insurance is to provide
injured workers with benefits, yet under this contract the
taxpayer is paying nearly $300 million, and the injured workers
are getting less than $75 million. I am trying to figure out if
this makes any sense.
Mr. Needham, you represent GAO. Do you think the taxpayers
are getting a good return on their investment?
Mr. Needham. Based on the data that has been presented
today, Mr. Chairman, it is not apparent that they are. One of
the concerns that we have had is that DOD needs to be more on
top of this in terms of what it is that we are spending.
DOD took on a practice of doing spend analysis several
years ago after we had issued reports on these best practices.
They have done this for other areas, clerical services, they do
it for software, wireless services. This represents an
opportunity for DOD to get on top of that so they could get a
better return.
Chairman Waxman. Well, that is certainly one of the
purposes of the hearing, but we are trying to see where we are
before we push them even harder to get where we should be. KBR
and AIG set the price of the insurance. Neither of them pays
the bills.
Mr. Needham. Right.
Chairman Waxman. The taxpayer does. That means they have no
incentive to keep costs low. Because KBR is operating under a
cost plus contract, the higher the premiums it pays AIG the
more money it makes.
Now, Mr. Mizzoni, do you think it makes sense to rely on a
contractor like KBR which has a cost plus contract and
negotiate its own insurance premiums?
Mr. Mizzoni. Again, sir, the way I understand it, they did
not negotiate it; it was the insurance broker in Texas.
Chairman Waxman. They relied on their broker, but none of
them paid the bills?
Mr. Mizzoni. None of them paid, correct.
Chairman Waxman. And they had no reason to hold down the
costs?
Mr. Mizzoni. It is a cost reimbursable contract. We do pay
the cost. One or two things I would like to mention is that KBR
safety record was actually very good, and the safety record is
used when negotiating award fees.
During our audit, when we brought this to the attention to
the KBR as far as the rate increases from fiscal year 2003 to
fiscal year 2004, they did question their broker.
Chairman Waxman. Well, the concerns about this problem are
not new. Since 2005, auditors and experts have been warning
that the taxpayers are being overcharged, but it has been hard
to get a definitive picture of what is really going on with
this program because the administration has not wanted to
compile the data. So that is what we tried to do.
We asked the top four insurance companies that account for
more than 99 percent of the DBA market to provide the committee
with profit and pay out data, and we are now able to see some
concrete trends. What the data shows is that from 2002 through
2007 these four insurance companies received $1.5 billion in
premiums under contracts negotiated with private contractors in
Iraq and Afghanistan. These companies will pay out $928 million
in claims and expenses, and they will retain net underwriting
gains of $585 million. In other words, these four insurance
companies have retained as profit 39 percent of the premiums
they receive.
Now my time has expired, but I certainly want to pursue
this with Mr. Ginman and others because it seems to me it is
quite excessive. But other Members may want to question on this
point, and I think it is well worth going into.
Mr. Davis of Virginia. May I answer your----
Chairman Waxman. Well, I had a long series of questions, so
why don't you go ahead.
Mr. Davis of Virginia. Thank you very much.
Chairman Waxman. If not, other Members on the second round.
Mr. Davis of Virginia. Mr. Moser, let me start with you.
You note in your testimony there were four offerors during
State's most recent DBA competition, is that correct?
Mr. Moser. Yes, that is correct.
Mr. Davis of Virginia. When was that contract awarded?
Mr. Moser. In 2001.
Mr. Davis of Virginia. Could you speculate for us why State
gets more offers than the Army Corps?
Mr. Moser. Well, it is very difficult for me to make
comments about any other agency's contracting activity. I will
say for our contracting activity, we very much want to promote
as much competition as we can get, so I will turn that over to
Mr. Dalton for comments about the Army Corps.
Mr. Dalton. I think maybe one of the reasons why we get
fewer offerors than the State Department is because we
concentrate heavily in more hostile areas than perhaps the
State Department. A large part of our work is in Iraq, is in
Afghanistan, and some over in the Balkans, and so when we get
our prices and contractors take a look at where we are working,
there is a higher risk associated with bidding on Corps of
Engineer contracts than perhaps State Department that are more
spread out across the world.
Mr. Davis of Virginia. Thank you. Last year the CBO
estimated that creating a single DBA insurance pool for the
entire DOD would save the Government millions of dollars. But
the CBO also warned that due to the increased Government
administrative costs and the uncertainty over whether insurance
providers would be willing to underwrite such a massive policy,
the creation of such a pool would not necessarily result in
savings for the Department of Defense.
Creating a pool would also effectively subsidize
contractors in more dangerous areas by charging inflated rates
to those in safer areas than subsidized contractors--you
understand what I am saying. Would the creation of this type of
Department-wide insurance pool result in savings to the
Government, let me just ask? I will start with the GAO.
What effect would it have on contractor safety systems?
Would this type of arrangement result in more contractors
moving to self-insurance model? What is your thought on that?
Mr. Needham. Mr. Davis, in terms of looking at options, one
of the things we recommended back 3 years ago was that DOD
begin to assess the various options. What they actually did was
adopt the Army Corps single insurer program for the Corps.
What we would like to see them do is to look at possibly--
the Government has a self-insurer, but that is one option--but
you could create multiple pools. There are tradeoffs, and
according to Admiral Ginman, they are going to be looking at
these possible business cases on this and what they can do in
terms of what the risks are with various job categories in
various parts of the world.
This is what we are looking for is that they make this kind
of a tradeoff analysis. They haven't done this yet.
Mr. Davis of Virginia. Let me ask this, Admiral Ginman.
Could you, for example, do a single provider system for Iran
and Iraq, another in other regions of the world, and do three
or four single provider systems? Would that work, seeing that
it is so large and diverse?
Admiral Ginman. Mr. Davis, I think, as Mr. Needham just
said, there are a lot of options available to us. We, frankly,
don't have the data today, and we have committed that we will
go collect the data. A single contractor for in a risk pool for
Iraq/Afghanistan is certainly an option. The single contract
concept that State and USAID and the Corps are using is an
option.
Mr. Davis of Virginia. Well, let me ask you this. Wouldn't
a single contractor for Iraq/Afghanistan make more sense than
one across all regions given the different diversity and risks?
Admiral Ginman. I think from risk pool perspective, having
a single contractor in Iraq and Afghanistan would make sense to
me, personally, but I am dong that without the benefit of the
business analysis to make that determination behind it.
Mr. Davis of Virginia. Right. How many insurers are there
in Iraq and Afghanistan, do you have any idea?
Admiral Ginman. Department of Labor has worked with the
Joint Contracting Command in Iraq and Afghanistan. There are
currently three that are being used, and Department of Labor is
working to add a fourth. So that the contractors doing work,
particularly the local contractors, have an option of three
today and, hopefully, they will have an option of four soon.
Mr. Davis of Virginia. What generally happens is the
contractor hires the company?
Admiral Ginman. Absolutely. It is the contractor's
responsibility to get the insurance.
Mr. Davis of Virginia. And they have to take it off an
approved list?
Admiral Ginman. Yes. It is approved by the Department of
Labor.
Mr. Davis of Virginia. OK, that is fine.
Chairman Waxman. Thank you, Mr. Davis.
Mr. Cooper.
Mr. Cooper. Thank you, Mr. Chairman. What we are really
talking about here, folks, is war profiteering. Private
companies making money, profits, off of people who are injured
or killed in a war zone. When Mr. Waxman left off his
questioning, he pointed out that the profit margins are
unusually large, 39 percent, whereas a domestic ratio would be
maybe closer to 1 percent.
That is not a pretty picture. Now, I suppose there are a
lot of bureaucratic reasons for this, but, Admiral Ginman, as
the DOD representative here, are you concerned that insurance
companies have made nearly $600 million in profits as a result
of the War in Iraq and Afghanistan?
Admiral Ginman. Am I concerned. I think any time the
Government is taken advantage of, it is a concern.
Mr. Cooper. Can you speak louder?
Admiral Ginman. I said any time the Government is taken
advantage of, it is a concern.
Mr. Cooper. Well, you have been on duty in this assignment
since October 2006.
Admiral Ginman. Yes, sir.
Mr. Cooper. Has the Government been taken advantage of
during your time on duty?
Admiral Ginman. I don't have the data that the chairman
provided, so based on simply what he said and the data that was
there, if in fact 1 percent, as you provided, is a correct
number, and 39 percent is in fact the percentage that is being
made, that would certainly be an opportunity to go look in more
detail at those specifics.
Mr. Cooper. Admiral Ginman, you are acting like this is a
new issue. This was raised in 2005, 2006, 2007. Congress passed
a law in 2006 requiring the Secretary of Defense to do exactly
what the GAO has been recommending. So this isn't news.
Admiral Ginman. And we implemented the pilot program with
the Corps of Engineers to go collect the necessary data so that
we would have the data to do a reasonable business case
analysis to make a determination on a DOD-wide or an Army-wide
or service-wide approach.
Mr. Cooper. Who completed those?
Admiral Ginman. And the pilot program showed $19 million in
savings that DOD did nothing to implement it more broadly. So
here you had a very encouraging result, and we are dragging our
feet. I mean the pilot program has not been completed and has
not reported out all of the analyses, and we are looking for
support from the Army Audit Agency and from the Corps of
Engineers to be able to provide us the data to make that
business case analysis.
Mr. Cooper. Mr. Needham, you represent GAO. Don't you think
these are high-profit levels for these insurance companies and
for the KBR contractor?
Mr. Needham. Based on what the norm is for the insurance
industry, that is what I have been told, that these are high.
I would mention, too, that part of that is driven by what
the loss rate is, and the loss rate that was cited by the Army
Audit Agency for the contract that they looked at was 26
percent. That is pretty low. The normal is about 68 percent
according to AIM. Best that has done studies of this. So if you
have a high rate of losses over a period of years, you may try
to increase your profits in some years so you can compensate
for those losses in those later years.
This is the kind of analysis that needs to be done: What
should we be paying so that we are a smart buyer when it comes
to these kinds of insurance products?
Mr. Cooper. Let's try to put it in plainer English. If you
were a private insurance contractor and you faced a risk in a
war zone, you would essentially be trying to exaggerate that
risk so that you would protect your ability to make money. You
would essentially be betting against our Government and our
servicemen because you would want to be prepared for the worst
possible case. That puts our private companies in a terribly
awkward and unpatriotic position in anticipating a worst case
scenario for the outcome of the war and for the welfare of our
contractors, when there are other ways to do this.
Mr. Mizzoni mentions one in his testimony talking about
retrospective risk analysis rating plans where you can see the
actual results in the field, so you are not betting against the
Government and our Army and our military, so you can see what
the losses are and compensate insurance companies
appropriately, based on their actual losses so that they can
make a profit but not an extraordinary war profiteering profit.
Mr. Mizzoni, has the retroactive approach been used?
Mr. Mizzoni. I believe other parts of the Government have
used it, but certainly the Army has not. Like you say, sir, our
recommendations to the Assistant Secretary for Acquisition and
Logistics technology gave them several options. One was to use
retrospective pricing plans.
In their reply back to us, they indicated they wanted to
see the end of the pilot program, which was supposed to be
March 2008, and decide the success of the program to see if it
should be expanded Army-wide.
Our position, or my position, is if that program does not
get expanded Army-wide, our recommendations to include
retrospective pricing plans or self-insurings are on the table
again.
Mr. Cooper. I apologize, I see my time has expired, but
this is May 2008. The decision was supposed to have been made
in March 2008, and that has not been done, right?
Thank you, Mr. Chairman.
Mr. Tierney [presiding]. Thank you, Mr. Cooper.
Mr. Sarbanes.
Mr. Sarbanes. Thank you, Mr. Chairman. I have a little bit
of a cold so I apologize for my voice.
I am listening to this and I remember the images way after
we invaded Iraq of the terrible looting that occurred. You all
may remember that. I saw those images on television. I think
Secretary Rumsfeld ascribed that to the enthusiasm of democracy
or something in a way that later didn't prove out as a
particularly sensible observation.
But listening to this and thinking back over the various
hearings that we have been having about what Congressman
Cooper, I think, has accurately referred to as war
profiteering, that initial spate of looting was immediately
followed by another round of looting. This is kind of white
collar looting. It is looting with a tie sitting in an office
someplace.
The definition of looting I just found on my Blackberry is
to plunder, to seize booty in a conquered or sacked city. And
this one was interesting: to carry off as plunder, or to secure
a prize lawfully by war. So whatever definition you want to
use, I view this as looting: high-end, upscale, white collar
looting.
Now, what is the most troubling, and it is really
grotesque, the whole thing, but what is most troubling is the
profit margins that we have discussed already, and that is
troubling for two reasons.
One is it can mean that the premiums are being exaggerated
beyond what the risk is so that, in other words, there is a
dedicated effort to make money off the enterprise beyond what
is appropriate or acceptable.
That is bad enough, but there is also evidence that maybe
the profits are the result of not paying out the claims that
are deserved, which is even more offensive. I mean in the first
instance you are making more money in a situation in which
maybe you are paying the premiums that people ought to have, so
at least those being injured as being fairly compensated, even
if the taxpayers are being taken advantage of.
But there is evidence that not only were the premiums
exaggerated to get some of these profits, but in addition,
there was denial of the claims going on, on the other end to
help maximize the profits, which is supremely offensive because
that means people who are injured were not getting the
compensation they deserve.
I think my time has started but isn't being accounted for
there, so I wanted to ask about these insurance companies
delaying the benefits because, in the committee's
investigation, the committee staff spoke with a number of
injured employees, their families, physicians, and others who
have been engaged first hand in trying to get their claim
satisfied, and they indicated that despite receiving massive
profits under this DBA program, many of the insurance companies
are fighting which are to make claims.
So I guess, Mr. Hallmark provided a briefing on the DOL's
role in monitoring the DBA claims and told us that the
insurance companies are contesting at the outset virtually
every DBA claim that is being filed. Is that essentially
correct for substantial numbers of those claims?
Mr. Hallmark. I don't believe I indicated that statistic.
The Longshore DBA process is a complicated one, and there are
filings that occur on many, many cases called contraversions
which are filed oftentimes routinely. They don't necessarily
mean that the insurer is not paying the claim.
So it could be viewed as opposition of claims when it is
simply an ineffective administrative filing.
Mr. Sarbanes. Well, I gather we discovered that about, in
45 percent of the claims made by the employees' insurance
companies were filing formal disputes, and when it goes up the
chain to a judge, the companies are winning those disputes at
only a rate of 5 percent.
So this just gets back to the notion of them fighting as
hard as they can to secure profits against these exorbitant
premiums that they are getting.
Then I will just finish up, let me just finish up because I
know I am probably out of time here----
Mr. Tierney. That would be appropriate.
Mr. Sarbanes [continuing]. By noting--I won't ask you to
answer this question--but I gather that the way the benefit
capping works as it was described, the premium is set against
the salary, and so it can be, if you have a salary of $180,000
versus $90,000, the premium that is being charged by the
insurer can be double, so they are obviously getting a higher
premium. But the payout is capped by law at $90,000 as it would
be for the person making $180,000. So there is obviously
something wrong with that system.
So in any event, clearing insurance companies have been
taking advantage, and setting up these pools seems like a
better approach.
Thank you, Mr. Chairman.
Mr. Tierney. Mr. Sarbanes.
Mr. Issa.
Mr. Issa. Thank you, Mr. Chairman. Mr. Dalton, if the
reports of widespread fraud by mostly, we will just say, Iraqi-
based companies, contractors, who in fact are charging for
insurance that is never purchased and thus the absence of
benefits often comes from the fact that there was no coverage,
and the company may selectively decide to take care of their
employees.
What are you able to do to end that double-billing, billing
for a service not received?
Mr. Dalton. Actually, what we are taking a look at right
now is part of our normal--I will call it the Q/A process of
contract, which is contract administration--is we are requiring
contractors to provide those certificates of insurance prior to
us allowing them to proceed with construction work.
Now, certainly, there are cases where we might miss some,
and we are trying to be a lot more diligent in following up on
those. Recently, a case was cited where we had a contractor
doing just exactly what you just mentioned. That was found
through just part of our routine oversight of the contracts.
While we don't have it perfect yet, and we are still
learning as we go with the DBA insurance how to administer it,
what we are doing is making sure that we train our people to
watch for those areas that might be fraudulent. We train folks
before they actually go in the theater, and that is how this
particular case got identified.
Mr. Issa. Mr. Dalton, I served with the Corps of Engineers
before most of the people sitting behind me were born, so we
have been doing contract oversight for a long time, both
domestically and around the world.
If Congress empowered or passed a law, today we seem to be
concentrating in some cases on profit made rather than real
oversight and reform, if we in fact said, look, your general
contractor must supply the umbrella for all subs, and then they
have to administer it, and then we have a single point of
contractor on each prime, would that make it easier for you to
ensure, one, that there was insurance, and, two, that there
was, in fact, a single point of accountability on multiple
contracts, but comparatively few? Would that make it more
possible for your inspectors to actually accurately inspect?
Mr. Dalton. I think it definitely would. I mean, the
contracts that we administer now, as you well know, we have
multiple subs, and to try and reach into and look at all the
tiers of subs to verify they have insurance is not an easy
task.
Mr. Issa. So it would be fair to say that right now the
system is a system in which you only hope to get better, and in
fact a change in the system would be what would allow us to
have a confidence that you would be able to get to 100 percent
compliance.
Mr. Dalton. I think it is fair to say that if we had the
ability to do, as you described, a one contractor being
responsible that it makes it a lot more easier to administer,
and it places the responsibility within that prime contractor.
Mr. Issa. Mr. Needham, we are supposed to be the committee
on Oversight and Government Reform, and as I was alluding to,
once you find out there is a problem the question is, should we
be part of the reform?
Let me pose a question from my years in business. On the
size contract that we are dealing with, I have to tell you,
long before I got to the size of KBR, and certainly long before
I got to the size of USA, Inc., I would have an administrative-
only contract in which I would bear the responsibility as the
Federal Government with no markups for the actual payouts,
effectively realizing that I have more money as the U.S.
Government than any insurance company, and I would be paying
for an administrative-only fee, meaning that $73 million in
payout, I would have paid, and whatever the delta is that was
mentioned by the chairman earlier by AIG, that would be on a
fee basis, an administrative cost plus basis, if you will.
Why in the world haven't we looked at that? That is one-
step removed from the scenario I gave Mr. Dalton. That is
saying, why is it, in fact, we don't treat these contractors
under best case scenario similar to the way we dealt with
maneuver damage in Europe when you ran over a chicken. You
didn't call somebody's insurance company. We had active duty
personnel whose job it was to go out and deal with that in
order to not have a premium paid over and above the payout.
Mr. Needham. Your question being, why haven't we looked at
that?
Mr. Issa. Yes. Why wouldn't you say today in your opening
remarks that the system is fundamentally wrong to begin with,
that on these size dollars we should only be paying for
administration because the actual payout, numerically, we
don't--we could absorb the risk as the Government much easier
for less money than AIG or any other company, even if it was a
single contractor is doing today.
Mr. Needham. Right. That is one of the options we wanted to
have explored that we talked about with OMB and DOD back in
2005. When that was put into legislation for them to look at
options, we expected that there would be a full range of
options looked at: the self-insuring, also the single
contractor which--the idea of a single insurer, though, there
is a question about whether or not any one company would step
up and take that on.
Mr. Issa. And I am not proposing a single insurance
company. I think it is pretty easy for us all to see that the
size and scope, you could split this up into different
theaters, different administrative contracts, but the idea that
we would essentially not self-insure at the size of our
exposure seems to be absurd, considering this committee
regularly sees us self-insuring, if you will, the success of a
new destroyer coming out of the Coast Guard. And when it fails,
we pay the bill. By the way, we are paying a big bill on some
of these new ships.
But why? Is it that we failed you, to give you the right,
or that you failed to be able to exercise that,
administratively?
Mr. Needham. The reason this is now an issue is because of
the size of the premiums we are paying. I think the Army Audit
Agency mentioned that they were paying $5 million in 2003, and
it was up to $165 million 2 years later.
I mean it is DOD's responsibility now with this kind of
increase to go back and look at what are the reasonable
tradeoffs here, and what should we be doing--not continuing
business as usual, which is what they have allowed to happen
without the--I mean, aside from the Corps' program of the
single insurer.
DOD-wide, there has not been anything else looked at, and
that needs to be done.
Mr. Issa. Then I guess I will close by saying, when will
this committee know what the comparative cost would have been
had we simply, essentially self-insured and paid administrative
costs and not allowed, whether it is true or not, contractors
to essentially go out and bid a local broker to get an
insurance policy on this size. It seems to me like that is a
question we would like to have answered coming out of this
hearing, if possible. Is that something you can help us with?
Mr. Needham. Certainly. I mean, we can begin to look at
that. We looked at this 3 years ago. We stopped the work
because we couldn't rely on the data we were getting from the
insurance industry at that time. So we focused our efforts on
what DOD was doing or not doing in that case.
Mr. Tierney. Thank you, Mr. Issa.
Mr. Issa. Mr. Chairman, I appreciate that, but I hope the
record can indicate that is something that I think, on a
bipartisan basis, the committee should followup on, because
this could represent billions of dollars that a system change
would have to be implemented to do. That is what we do best is
when we ask for system changes that save America money.
Mr. Tierney. Thank you, Mr. Issa.
Mr. Cooper, you are recognized for 5 minutes.
Mr. Cooper. Thank you, Mr. Chairman. I would like to
congratulate my friend from California on his line of
questioning because it is a fundamental business point that I
had actually hesitated to bring up in a hearing like this. It
is who is the appropriate risk-bearing entity? And my friend
from California hit the nail on the head: even a large company
can effectively self-insure, but certainly the U.S. Government
is the best insurance company of all, and we don't have to pay
the premium, the overhead, the stuff like that. It is an
amazingly efficient mechanism if we allow ourselves to use it.
Sadly, the rhetoric of recent years has called that big
government, even though it might save the taxpayer the most
money. So it actually ends up being smaller government than
relying on all sorts of contractors who each have to have their
huge profit margins.
But another key point, we have been sold a bill of goods
here, and again my friend from California hit the nail on the
head. We did not need to buy insurance from a private carrier.
All we needed to buy was administrative services only, ASL,
maybe a little help with the paperwork because we, the U.S.
Government, are the best risk-bearing entity. It sounds like
the GAO was discouraged from even seriously considering this
first best solution. Instead we have been paddling around with
pooling and things like that are second or third-best
solutions.
But I would join my friend from California, and let's put
all the solutions on the table because our job is to get the
taxpayer the best deal. But the key point here is clearly
seeing what is at stake.
I have seen this over and over in health care. Giant
academic medical centers with billions of dollars in the bank
hiring a little puny insurance company to provide HMO services
when they should have been buying ASO services, not HMO
services. So let's think large. So that has been one problem,
failure to clearly perceive.
Another problem is foot-dragging. Again, Admiral Ginman,
you know, the deadline was March 2008. I know you haven't been
eager to pursue this topic, but this hearing would have been a
great opportunity to announce a bold new initiative from DOD to
save the taxpayer money.
Admiral Ginman. Yes, sir.
Mr. Cooper. That opportunity has not happened.
Admiral Ginman. One, it is my understanding that the pilot
has been extended out to September 2008.
Mr. Cooper. Can you talk louder?
Admiral Ginman. I said it is my understanding the pilot has
been extended out to September 2008 and that we don't have the
data and the business case analysis back. We will happily work
with the GAO to take a look and evaluate the option of, does it
make sense to be a self-insurer in this instance.
Mr. Cooper. Could you repeat that last sentence?
Admiral Ginman. I said we will happily work with GAO to
make a determination as we look at the business case analysis
as to whether it makes sense as one of the options on the table
to look at being a self-insurer.
Mr. Cooper. Well, here we have a 3-year pilot program that
in the first 6 months we knew it saved $19 million, and now the
pilot program has apparently been extended. You don't seem
anxious to tackle this problem.
If the FDA discovers a new medicine that is clearly
superior and lifesaving, do you know what they do--and doesn't
have bad side effects? They go ahead and allow the people to
buy the new medicine. This is an example like that. We could
have saved tens of millions of dollars, but you don't appear
eager to tackle this project.
Admiral Ginman. I don't know the impact that decision has
on the rest of the insurance programs that we have around the
world when I go to the single program that has today four
rates: one for construction, one for services, one for
aviation, and one for security services that I am now going to
apply not just in Iraq and Afghanistan but to all of the
insurance coverages throughout all of the countries that we
operate in.
Mr. Cooper. There are always uncertainties, but can you
guarantee this committee you will not be going to work for one
of these companies, because I assume your tour of duty is going
to be about up this fall, right?
Admiral Ginman. Well, one, I retired in 2000 from the Navy.
I worked in private industry for 6 years, and I made a decision
to come back to the Federal Government. It is my intention to
stay with the Federal Government. I am not a political
appointee, I am a career civil servant.
Mr. Cooper. So you are planning on staying. Well, that is
good.
Admiral Ginman. So I plan to be around to help work this
issue.
Mr. Cooper. I would hate to have to educate a new group
right when the Pilot Study is finally completed. Can you help
this committee understand? Have you received any memos, phone
calls, or other contacts from superiors asking you to slow-walk
this issue?
Admiral Ginman. We have not been asked to slow-walk this
issue by anyone, sir.
Mr. Cooper. So you have done the slow walking on your own?
[Laughter.]
Admiral Ginman. Again, I would like to think that we are
waiting until we had adequate data to do a significant business
case analysis so that we understand the decision we are making,
as opposed to making a decision based on information that is
not yet complete.
Mr. Cooper. Well, what was the key factor that requires the
Pilot Study to be extended another 6 months? What information
was lacking? Why wasn't it wrapped up March 2008 and you have a
great report for us here today?
Admiral Ginman. I would have to ask the Army the question
as to why it was extended another 6 to 8 months. I know when we
just----
Mr. Cooper. You would have to ask who to know?
Admiral Ginman. I would have to ask the Army why the pilot
program was extended another 6 months. I do not know the answer
to that question.
Mr. Cooper. Can the Army answer that?
Mr. Dalton. I can answer that. So the reason why we
extended for another 6 months was because we were not
necessarily just to collect the data. The data is something
that we have ongoing to try and provide to OSD so that they can
have the business case analysis.
But the reason we extended it for 6 months was because we
needed to have time to actually get a new contract in place
because this contract simply would expire and we would be left
with no DBA central insurer. So it was not to just collect
additional data; it was actually just to maintain continuity in
having an insurance company, single DBA insurance company.
Some of the things that we need to provide to OSD to help
approve the business case are things like, for instance, the
impact across the rest of the work that we do. For instance,
there have been claims that if you have DBA insurance and pay
higher rates, or lower rates in places like Iraq/Afghanistan,
then--I think it has been alluded to here--that if there is an
increase in places that are more in a non-hostile environment--
we are looking at that now to try and help us to help OSD with
the business case, in the few that we have found, we haven't
found there has been a substantial increase in those insurance
premiums as was certainly mentioned in the beginning.
Just as an example, in one contract in the Balkans, we only
found it was about a $2,000 increase, I think. So there is
information that we are gathering in terms of overall costs on
contracts, subcontracts that we need to provide to prove the
business case.
Mr. Cooper. Thank you. Mr. Chairman, I know my time has
expired, but foot-dragging seems to be contagious.
Mr. Tierney. Well, I think the point is well taken. If you
look back in 2005 when the GAO issued a report, you know, then
you follow that up in 2006 when Congress made a particular
ruling on this; 2007 the Defense Department issued a paper
about its pilot program, did nothing to extend the program, the
obvious factor is the information that you are now looking for
is information that you probably should have started collecting
and had mostly done since 2005.
So the frustration of the committee I hope is appreciated,
that there are just so many times you have to be told to do
something before you actually get off the back side of your lap
and do it. That is the frustration that is here.
Mr. Needham, at the Government Accountability Office you
issued a report on the DBA program in 2005. In it you stated
that the agencies lack reliable data on how many contractors
and subcontractors are in Iraq, the cost of the Government of
DBA coverage of contractors and whether all contractors
operating in Iraq provided their employees required DBA
coverage. Is that right?
Mr. Needham. Yes.
Mr. Tierney. Mr. Hallmark, as I understand it, the
Department of Labor has the responsibility to process DBA
claims to ensure the workers get the benefits they are entitled
to. You don't track how many employees are covered or how DBA
rates are determined, or the overall cost to the employer, is
that correct?
Mr. Hallmark. That is correct. We don't actually process
claims, we oversee the delivery of those claims through the
insurance companies.
Mr. Tierney. And, Mr. Ginman, turning to the Department of
Defense, can you tell us the total amount of Pentagon
expenditures on DBA insurance.
Admiral Ginman. I do not know the answer to that question.
Mr. Tierney. Mr. Moser, can you tell us how many State
Department contractor employees are covered by DBA insurance?
Mr. Moser. No, we can't, but we feel that figure is not
really important, because we felt that we got good rates out of
our contract for DBA insurance, and we are satisfied with that
contract. Then the number of employees employed by each of our
individual contracts depends on the nature of the work that
they are doing.
Mr. Tierney. Mr. Dalton, can you tell us how many contract
employees are covered by DBA insurance at the Army Corps?
Mr. Dalton. I can't do that at this point in time. I can
tell you how many contracts we have, but certainly not the
number of contracting employees.
Mr. Tierney. So, Mr. Needham, it doesn't look to me like
everybody is following your advice here. At least they are not
putting the kind of attention to it that we would have thought
would be warranted by that report.
What, exactly, did your report recommend back in 2005?
Didn't you recommend at that point in time that the Office of
Management and Budget, the OMB Office, get involved?
Mr. Needham. Yes, we did, Mr. Chairman. We met with the
Office of Management and Budget prior to--we had been
discussing this with DOD. We then had formulated a
recommendation. We met with OMB, they looked at it, and they
said this makes perfect sense.
We then put the recommendation into the draft report and
went to the Department of Defense. When it came back, there was
disagreement from both OMB and DOD as to what we were
recommending. At that point we met with Senate Armed Services
Committee, and they took our recommendation and placed it into
legislation.
Mr. Tierney. What, specifically, was the White House's
response to your recommendation?
Mr. Needham. I don't know if there was any White House
response. There was a Department of Defense response.
Mr. Tierney. OK. And OMB didn't make a response?
Mr. Needham. No.
Mr. Tierney. OK.
Mr. Needham. I don't think so.
Mr. Tierney. Mr. Waxman.
Chairman Waxman [presiding]. Thank you very much. Before we
conclude the hearing, I just wanted to say that I am very
grateful for the witnesses that have appeared today to talk
about this issue. I am disappointed, and I have to say it,
about what I have heard from the Department of Defense.
For 3 years Congress, auditors, and other experts have
raised concerns about DOD, about the cost of the Defense Base
Act insurance, and we have tried to get this whole issue moved
forward. I don't think Congress can simply allow a waste of
money to continue. I have prepared legislation that would
require DOD to establish an agency-wide single insurer risk
pool for Defense Base Act insurance, the same approach
successfully used by the Department of State and the Corps of
Engineers, to hold down costs.
We have already submitted it to CBO, and under their
analysis it would save taxpayers over $360 million over the
next year. I have determined to end the waste and abuse in the
Defense Base Act Insurance Program. This legislation I think
will do that. We are going to look to both sides of the aisle
to see if we can get this legislation enacted.
This hearing was to be constructive. I hope it will be
constructive, and I hope we will get the kind of result that
will make sure we have the insurance we need at a price that
the taxpayers can afford.
Mr. Davis.
Mr. Davis of Virginia. Oh, thank you. Just very quickly, I
want to thank all the witnesses. I know how CBO scored it, I
would like to see GAO take a look at this as well.
Chairman Waxman. Yes.
Mr. Davis of Virginia. One of the concerns is when the
Corps of Engineers went out there, they just got one bidder. I
don't know that you can save money under those circumstances
where we have real competition going on. But I am open on the
question.
Let me just particularly thank Admiral Ginman for coming
back into Government service after you retired. I appreciate
your service both before and after and your willingness to step
out from the big salaries in the private sector to come back
and serve the public.
Admiral Ginman. Thank you.
Mr. Davis of Virginia. And to all of you who serve the
public, thank you as well.
Chairman Waxman. I thank you all and Admiral Ginman, and I
also want to praise you for your service. My criticisms, of
course, in no way are personal to you. It is the issue that we
are looking at.
Thank you. That concludes the hearing. We stand adjourned.
[Whereupon, at 11:40 a.m., the committee was adjourned.]
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