Army fires Halliburton from Iraq contract
12 July 2006
WASHINGTON, July 12 (HalliburtonWatch.org) -- The U.S. Army Corps of Engineers announced plans to terminate Halliburton's largest and most scandalous contract in Iraq and Afghanistan later this year, the Washington Post reported today. Under the contract, known as LogCap, Halliburton's KBR subsidiary performs a myriad of logistics services on U.S. military bases worldwide, including the construction of military housing, delivery of mail to the troops, transportation of supplies, and the preparation of meals at dining halls. ###
Pentagon auditors found over $1 billion in questionable costs under the contract. Current and former employees described instances where Halliburton overcharged U.S. taxpayers by paying $45 per case of soda, $100 for a standard cleaning of laundry, and $80,000 for brand new Mercedes trucks that were torched because of minor equipment problems. At one point, Halliburton billed the government for 36 percent more meals than was actually served to the troops while an internal company report said it had overcharged by 19 percent. Another military audit, first revealed by HalliburtonWatch, accused Halliburton of imposing "increased costs to the government” (and therefore higher profits for the company) by purchasing millions of dollars in trucks that were sitting idle and unused in parking lots under Iraq's desert sun. In addition, a report by Halliburton employees, first revealed by HalliburtonWatch, revealed how the company was delivering contaminated and unhealthy water to unsuspecting troops throughout Iraq on a regular basis.
Even though Iraq's oil industry was still in shambles, early last year Halliburton bailed out of its scandal-plagued oil reconstruction contract with the Army. "It's just not an environment, either legally or risk-wise" to do business, Andy Lane, Halliburton's Chief Operating Officer & Executive Vice President, told investors last year. It's unclear whether Halliburton cut-and-run from the oil work or was pushed out by the U.S. State Department, which had produced a scathing report that harshly criticized the company's work.
Today's decision by the Army means the LogCap contract will be split-up into three companies, reports the Post, with a fourth firm hired to help monitor the performance of the other three. Halliburton will be permitted to rebid on some of the new work. But last year, the company's CEO, David Lesar, said: "If we do choose to rebid, we're going to jack the margins up significantly," a threat that could prove costly to taxpayers if Halliburton is allowed back into any LogCap work.
Halliburton is still permitted to sell its oil services to Iraq's government and companies doing business there, so it's doubtful the company is leaving Iraq entirely and could actually increase work in the country if Iraq's fledgeling government allows it. "This is the year of transition for Iraqi reconstruction. The U.S.-funded projects are being completed and transferred to Iraqi management and control," a spokesperson for the Inspector General for Iraq Reconstruction told the Post.
Activists have called on the Pentagon to ban Halliburton from all new contract work until the numerous investigations of the company, including criminal investigations, are concluded. HalliburtonWatch, along with the Center for Corporate Policy, produced a report on how the military can legally debar (or ban) Halliburton from doing business with the military.
Despite claims in 2003 that Halliburton is the “only company” that can handle the Pentagon's logistics work in Iraq, today's Post quotes a consultant for the company as saying, “You're really asking too much of one firm to be able to manage all of this.” Other companies expected to bid for the contract later this year include Lockheed-Martin Corp. and Northrop-Grumman Corp.
After Halliburton was fired in 1997 from most of its LogCap work, DynCorp held the contract until 2001. In the first few months after the Bush administration came to power, with the new vice president and former Halliburton CEO Dick Cheney, Halliburton was re-hired exclusively for the contract. Evidence indicates Cheney improperly played a role in awarding Halliburton the controversial no-bid Iraqi oil infrastructure contract in the weeks prior to the March 2003 invasion.
Rep. Henry Waxman (D-CA), a strong critic of Halliburton, told the Post he'd like to see more companies involved in the LogCap contract. "When you have a single contractor, that company has the government over a barrel," Waxman said. "One needs multiple contractors in order to have real price competition. Real competition saves the taxpayer money."
Waxman has criticized the "cost-plus" arrangement in Halliburton's contracts. Under a cost-plus contract, a government contractor like Halliburton purchases all the necessary items to complete a job order and is subsequently reimbursed all those costs from the government -- and then paid a percentage of those costs (the plus) as a fee. A typical contractor earns a base fee of one percent of the estimated contract cost and an "incentive fee" of up to nine percent of the cost estimate based on the contractor's performance in a number of areas, including cost control. The result: The contractor will never spend $1 million to do a job when it can spend $10 million and thereby earn a higher fee. So, contractors actually earn more money by wasting taxpayer money. The cost-plus method of accounting is the primary system today for determining how much government contractors are owed by the taxpayer.
Under the LogCap contract, Halliburton can receive a fee of up to three percent of its costs, including a guaranteed one percent base fee and an additional two percent fee based on performance. Under the company's Iraqi oil contract that was terminated last year, Halliburton could receive a fee of up to seven percent of its costs, including a two percent base fee and a five percent fee based on performance.
A former procurement official with Halliburton in Kuwait testified before Congress that company supervisors "frequently" told employees not to worry about how much the taxpayer was being charged. The supervivors would often say, "Don't worry about price. It's cost plus," in reference to the LogCap's cost-plus arrangement with the Army.
Author and Halliburton critic, Bill Hartung, said: "The problem with the Halliburton case is that once you have handed over a huge swath of your operation to them for a 10-year period, mostly in the form of open-ended, cost-plus contracts, there is no more competition. If you become dependent upon a company like Halliburton for essential functions, while eliminating the people you would need to carry out those functions, then you are setting yourself up for the death of a thousand cuts. Or, in this case, a thousand cost over-runs."
So far, Halliburton has received over $16 billion in revenue from the Pentagon for its work in Iraq that began after the March 2003 invasion.
The Army expects to announce the new LogCap contractors in November.