President Barack Obama pledged nearly two years ago to fix the broken system of awarding and managing federal contracts. But a new report paints a grim picture of the government's reliance on the private sector for support in war zones and urges a series of reforms to prevent more U.S. tax dollars from being wasted.

The Commission on Wartime Contracting concluded that the use of hired hands has become a "default option," pointing to the estimated $177 billion spent since 2001 on contractors in Afghanistan and Iraq, according to a draft of the report expected to be released Thursday. Yet vigorous oversight and management of contractors by the Pentagon, State Department and U.S. Agency for International Development is too often "an administrative after-thought," the report said.

The bipartisan commission is urging Congress to provide the agencies with more people and authority to control this industrial army, which at times has nearly equaled the size of U.S. forces in Afghanistan and Iraq.

"Unless Congress provides resources to oversee and evaluate contractor performance, waste will continue and national objectives will suffer," according to the draft report, obtained by The Associated Press. The investment "will be amply repaid in reduced waste and increased effectiveness" of war-zone contracting, it said.

Obama announced plans in March 2009 to curb the government's appetite for contractors while also pledging to crack down on fraud, cost overruns and shoddy work. War-zone contracting is a major part of the government-wide problem that Obama targeted. The panel's findings underscore the difficulty of enforcing changes to a business sector long dominated by well-connected companies, such as KBR Inc. and DynCorp International, that handle construction, transportation, food services, training and security in combat areas.

U.S. intelligence agencies also employ contractors, an arrangement that in recent weeks has produced serious diplomatic headaches. Raymond Allen Davis was working as a CIA security contractor in Pakistan when he shot and killed two armed men last month in the eastern city of Lahore. Davis' connection to the spy agency is likely to further complicate the Obama administration's efforts to free him from jail and continue to strain relations between the U.S. and Pakistan.

Created by Congress in 2008, the eight-member commission has broad authority to examine wartime spending, including military support contracts, reconstruction projects and private security companies. The new report is the panel's second interim study. A final report to Congress with recommendations for improving government contracting in war zones is due this summer.

After scores of meetings, briefings and visits to Iraq and Afghanistan, the commission concluded that too many federal officials view contractors as a "free" source of labor paid from ample budgets supplied by Congress.

To underscore the consequences of this attitude, the report noted that the military tends to consider small construction projects as low-risk efforts. Yet in less than a year's time, the Army and Air Force approved thousands of these minor projects in Afghanistan with a collective value of about $1 billion. Despite the overall price tag, the commission said no senior Pentagon official has monitored the growing construction costs or developed procedures for managing this surge in building.

The commission said that contractors have generally performed well in Afghanistan and Iraq. But bribes, kickbacks, and money laundering have marred their image. The commission noted that most money is lost to waste, as enormous amounts of cash have flowed into combat areas for support and reconstruction projects that can be unnecessary or poorly defined by the government.

"War by its nature entails waste," the report said. "But the scale of the problems in Iraq and Afghanistan also reflects the toxic interplay of huge sums of money pumped into relatively small economies and an unprecedented reliance on contractors."

Suspending or barring bad contractors from getting government work are powerful tools, the commission said, yet agencies don't use them often enough. That's in part because the suspension and debarment process is so cumbersome, especially in a war zone, where locating witnesses and compiling evidence is difficult. The result is that poor performing or misbehaving companies can keep getting more work, undercutting any incentive for them to improve.

When military and civilian government personnel rotate in and out of Afghanistan and Iraq, long-serving contractors often hold the most institutional memory. That makes effective management and oversight even more difficult, the commission said.

There is no central federal database for a definitive accounting of how much has been spent on contracts and grants to support the missions in Afghanistan and Iraq, according to the report. But the commission's "conservative estimate" is that $177 billion has been committed since 2001.

Likewise, there is no definitive accounting of how much of this total has been lost to waste, fraud and abuse. The commission calculates that "tens of billions of dollars have failed to achieve their intended use in Iraq and Afghanistan."

By the end of the 2010 budget year, there were nearly 200,000 contractor employees working in Afghanistan and Iraq compared to 202,100 U.S. military personnel, according to the commission.

Among the commission's specific recommendations is the creation of a permanent inspector general to watch over war zone contracting, and requiring agencies to pay more attention to a company's past performance before making new contract awards.



Commission on Wartime Contracting: http://www.wartimecontracting.gov/