WASHINGTON, March 11 (HalliburtonWatch.org) -- Halliburton's KBR subsidiary may have over-billed the Navy for labor costs during clean-up work in the aftermath of Hurricane Ivan, the Pentagon's inspector general reported March 3rd. The report said KBR's subcontractors had been billing for labor at rates "significantly higher" than the prevailing market rate.

Hurricane Ivan came ashore near Gulf Shores, Alabama, on September 16, 2004 as a Category 3 storm.

"The rates paid to some KBR subcontractors for labor were significantly higher than the prevailing Bureau of Labor Statistics rates for the area impacted by the hurricane (Pensacola, Florida)," the report said, adding that "additional review" is needed to make a final conclusion. The inspector general is conducting a follow-on audit.

The report contained language seen in previous military audits of Halliburton's contracts, including criticism of the company's notoriously-flawed cost documentation system that conceals overcharges. It states: "The underlying documentation for the invoice that KBR submitted in January 2005 for the Hurricane Ivan recovery effort causes us concern about the ability of the Navy to obtain a fair and reasonable price for the labor and material needed to accomplish the tasks associated with natural disaster recovery efforts."

(A HalliburtonWatch report earlier this year showed that KBR submits labor invoices to the military in Iraq with exorbitantly higher costs added ontop of the wage costs, but it's unclear how and where these extra costs are incurred. See "Halliburton bills U.S. taxpayers $50 for $5 labor in Iraq," Feb. 6, 2006.)

The possible over-billing in the aftermath of Hurricane Ivan occurred under Halliburton's Emergency Construction Capabilities III contract (or CONCAP III) with the Navy, worth up to $500 million over five years.

The inspector general's report chided the Navy for failing to consider Halliburton's past delinquent performance before awarding the CONCAP contract to KBR, including bribery and overcharges under its $13 billion Iraq logistics contract (or LOGCAP).

Although a company's past performance on government contracts is supposed to be considered before handing out new contracts, both the Army and the Navy failed to do so with regards to KBR, the report concluded. So, KBR's delinquent and illegal practices in Iraq were not entered into a military database that tracks contractor performance. The database is used by contracting officials to determine whether new contracts should be awarded.

Of the 36 task orders completed on the LOGCAP contract in Iraq, only one, worth $1 million, had made it into the database. The $209 million task order that included kickbacks worth $6 million paid to KBR employees was not entered into the database, and therefore was not considered by the Navy in its source selection. The Army has since entered the missing information, according to the inspector general's report.

For further information on the military's preferential treatment of Halliburton, visit this link.

CONCAP was first awarded to KBR in 2001, four months after former CEO Dick Cheney became vice president. The contract allows the Navy to direct KBR to provide emergency construction services at any time and under short notice. Under CONCAP, KBR is rebuilding areas afflicted by Hurricanes Katrina and Wilma. The prison facilities at Guatanamo Bay, Cuba that hold suspected al-Qaeda terrorists were built by KBR via CONCAP.

The Navy has paid KBR $295 million for reconstruction work since July 2004 under CONCAP, including more than $160 million for Hurricane Katrina reconstruction and mortuary services, $35 million for an additional prison and psychiatric facility at Guantanamo Bay and over $47 million for Hurricane Ivan cleanup. See the CONCAP task orders awarded to KBR since 2004 at this link.

The inspector general's audit was requested by Sen. Ron Wyden (D-OR).


More Information:

DOD-IG's report

DOD-IG's summary of the report

Office of the Deputy Inspector General for Auditing