NEWS

Concern Over Base Building
Is Army's First Open Knock
Of Conduct in Iraq, Kuwait

By GREG JAFFE and NEIL KING JR.
Staff Reporters of THE WALL STREET JOURNAL

WASHINGTON (Summary of Wall Street Journal Article) -- The highest ranking U.S. military official in Iraq criticized Halliburton for stumbling in its contracts to build new bases in the war torn country. The criticisms of Halliburton were written by Lt. Gen. Ricardo Sanchez in a letter to senior Army officers. It is the Army's first public criticism of Halliburton's conduct in Iraq and Kuwait. Until now, the Army had been satisfied with Halliburton's performance. The letter was not made available to the public, but senior officers told the Wall Street Journal about its contents. Halliburton's KBR unit is helping the Army consolidate its bases into fewer, but larger, bases in Iraq. In Baghdad, the military is reducing the number of bases from 26 to as few as six. But Gen. Sanchez is disappointed because KBR has failed to say when the new bases will be ready for the new troops. He also said KBR's failures have made troop rotations more difficult. Gen. Sanchez's letter also criticized KBR for late payments to food subcontractors. At least one subcontractor threatened to withhold food service to 2,000 soldiers in Iraq, which led the Pentagon's inspector general to investigate the complaints of KBR subcontractors. The letter also said KBR fails to promptly fill key management vacances in Iraq. There is a high turnover rate among KBR's senior management staff in Iraq. KBR won the huge logistics contract in 2001 to provide logistics to U.S. troops in the Middle East and elsewhere around the world. The contract jumped in value in 2003 to over $3.5 billion after costing just $500 million in 2002. KBR earns a 1% profit above its costs, with the possibility of an additional 2% as an incentive bonus. KBR sent a tiger team of about 80 employees to Iraq to develop schedules that the company can meet. At the start of this month, KBR subcontractors were awaiting payment on invoices totaling about $500 million. The average age of the invoices was 75 days. The costliest invoices were owed to several companies KBR hired to run cafeterias that feed more than 160,000 people a day in Iraq and Kuwait. Saudi-based Tamimi Global Co. was owed $136 million, while Kuwait-based La Nouvelle Trading was owed $76 million. Event Source of Salt Lake City is owed $87 million, of which $50 million is past due. Last month, KBR decided not to collect $176 million until it resolves a dispute with the military over how it calculates its meal-service charges. The Pentagon said that last year KBR's subcontractors charged for millions of meals that were never served. For more information, write to Greg Jaffe at [email protected] and Neil King Jr. at [email protected]