On August 31, 1997, at 1210 central daylight time (cdt), a Hughes 269A, N7058T, registered to Iowa Western Community College of Council Bluffs, Iowa, with a Designated Pilot Examiner acting as pilot-in-command during a Commercial, Rotorcraft-Helicopter Practical Test, was destroyed when it collided with terrain while on short final to runway 13, at Council Bluffs Airport. The examiner and commercial applicant sustained serious injuries. Visual meteorological conditions prevailed at the time of the accident. The instructional 14 CFR part 91 check flight was not operating on a flight plan. The flight departed Council Bluffs Municipal Airport, at 1100 cdt. According to a written statement, to the FAA, by the Designated Pilot Examiner (examiner), he was administering a Commercial, Rotorcraft-Helicopter Practical Test to the applicant (student). After a one and one half-hour oral examination with the examiner, the student prepared for the flight portion of the check ride. The examiner said that during the oral portion of the test, he discussed who would be responsible for the flight and who would be acting as pilot-in-command. He stated that he would be "... acting as a 'passenger'... ." He also stated that he reviewed the procedure for transfer of controls. The examiner said after the oral portion of the test, they departed Council Bluffs Municipal airport at approximately 1100 cdt. He stated that "various tasks were completed by reference to [his] prearranged plan of action satisfactorily and without incident." The examiner stated that transfer of controls occurred two times prior to the accident. After approximately 1 hour into the flight when they were hovering in a confined space, the examiner gave the student the instruction to "climb out, turn to the right, fly over the airport and head back towards the college." After departing the confined space and at an altitude of 1700 feet mean sea level (approximately 450 feet above ground level) at 50 KIAS and in a westerly heading over the runway, the examiner instructed the student to perform a "simulated engine failure," and reduced the throttle to the idle position. The examiner stated that the helicopter began to immediately turn left to parallel the runway. The examiner stated that the student "... did not adjust the collective to the appropriate 'down' position and the aircraft was not appropriately adjusted to the recommended 50 knot attitude." The examiner stated that he recognized a RPM decrease in the main rotor. He stated that he then took control of the aircraft and "...decreased the collective to the full down position, increased the throttle to regain rotor RPM, and applied slight forward cyclic to lower the nose to increase airspeed." The examiner stated that the aircraft began a right turn and he "... manipulated the throttle as required to maintain optimum power and acceptable yaw." The examiner stated that at approximately 10 feet he "...attempted to level the aircraft into a landing attitude and rapidly increased the collective... ." The aircraft impacted in a slightly nose-low attitude, bounced, and came to rest on its left side with extensive damage. A witness to the accident who was taxiing a Cessna 310 to the ramp at the time stated that he saw the helicopter throughout the approach. He stated that the "...helicopter made a very stable, rectangular approach... ." The witness stated that just after the helicopter crossed the 13 threshold, "... their forward motion suddenly stopped, and then the helicopter rapidly entered a nose down, very steep, very tight spiral descent into the ground." The witness estimated the altitude of the helicopter to be 50 to 75 feet off the ground when this occurred. After departing his airplane and calling for help, the witness ran to the accident site where the examiner and student were having a conversation. The witness heard the student ask the examiner what had happened and if something failed. The examiner's response was, "No... ...it was me, I failed." An on-scene picture of the aircraft showed the rotor blades with gull-wing type bending.