July 1, 2005 – Pentagon audits indicate that Halliburton, the largest US contractor in Iraq, overcharged the government more than $1 billion for its work, far more than previous investigations had indicated.
Further evidence, including the congressional testimony of a high-ranking Army procurement official and letters from Halliburton officials to the Pentagon, suggest that the company, formerly run by Vice President Dick Cheney, received preferential treatment from Secretary of Defense Donald Rumsfeldâ€™s office and other top military officials.
According to audits conducted by the Defense Contracting Audit Agency (DCAA), Halliburton subsidiary Kellogg Brown and Root (KBR) racked up $813 million in "questioned" costs under a contract to provide logistical and support services to US troops and another $219 million under its Restore Iraqi Oil (IRO) contract.
Auditors also identified an additional $442 million in "unsupported" charges under both contracts, bringing the total amount of Halliburtonâ€™s questioned and unsupported costs to $1.4 billion. That figure is sharply higher than the $212 million in overcharges revealed by Pentagon audits released in April.
The Pentagonâ€™s audit manual defines questioned costs as those "which are not considered acceptable," while unsupported costs relate to cases where "the contractor does not furnish sufficient documentation" to enable a conclusion about whether the amount is acceptable.
The bulk of Halliburtonâ€™s contracts are "cost-plus," meaning the company is paid for its expenses plus an additional fee based on an agreed upon percentage to cover unexpected costs and guarantee profits. Critics contend that such contracts give contractors no reason to limit expenses, but rather an incentive to inflate costs and over-bill the government.
Copies of several DCAA audits, plus a previously unreleased report by the Army Audit Agency that details Halliburtonâ€™s billing abuses, were recently obtained by House Democrats and posted on the website of the House Committee on Government Reform.
Pentagon auditors found numerous instances in which Halliburton charged excessive amounts for a wide range of items supplied to US troops in Iraq including video players, soft drinks and heavy equipment, as well as tailoring and laundry services. The audits also indicate that on several occasions, Halliburton charged the government twice for the same item or service.
KBR also charged the government for meals it failed to prepare for foreign laborers working at Camp Anaconda, a US military post in Iraq, according to a former KBR food production manager who testified before a hearing convened Monday by the Democratic Policy Committee.
In videotaped testimony, Rory Mayberry told the hearing that instead of preparing meals for 600 Turkish and Filipino workers that were appropriate for their cultural practices and religious beliefs, KBR fed them "leftover food in garbage bags and boxes" after US troops had finished eating.
Mayberry said that on some occasions KBR also served "outdated or expired" food to soldiers, and that company bosses told employees not to follow time consuming sanitation rules issued by the military. After complaining to his bosses and speaking to auditors, Mayberry, who worked for KBR in early 2004, says he was reassigned to a job in the dangerous city of Fallujah.
Speaking in person at the same hearing, Bunnatine Greenhouse, the top procurement official with the Army Corps of Engineers, testified that contracts awarded to KBR represented the worst kind of procurement abuse she had seen in 20 years on the job.
"I can unequivocally state that the abuse related to contracts awarded to KBR represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," she said.
Greenhouse further testified that an Iraqi oil contract awarded to KBR without competitive bidding was administered directly by Secretary of Defense Donald Rumsfeldâ€™s office, an alleged violation of Army procedures. "I observed, first hand, that essentially every aspect of the RIO contract remained under the control of the Office of the Secretary of Defense," she said, referring to KBRâ€™s lucrative deal to restore Iraqâ€™s oil infrastructure. "This troubled me and was wrong."
Greenhouse told the committee that on numerous occasions she raised concerns about the KBR oil contract only to be rebuffed by higher-ranking Pentagon officials.
On another occasion, military officials failed to obtain Greenhouseâ€™s approval to give KBR a special waiver related to the oil contract, according to her testimony. Greenhouse said that after a 2003 DCAA draft report suggested that KBR overcharged the government $61 million for the purchase of fuel, the Corps of Engineersâ€™ commander bypassed her office and issued a waiver relieving KBR of its obligation to provide pricing data. The move was a violation of Army regulations, according to Greenhouse.
An internal document revealing some of Greenhouseâ€™s concerns about the Armyâ€™s handling of a KBR contract was first made public last fall. Subsequently, Greenhouse said her bosses tried to fire her. In response, Greenhouse, who is black, filed a racial and gender harassment complaint.
Although she is still on the job, Greenhouse told the committee her decision to speak out publicly has not been easy. She said the lead attorney for the US Army Corps of Engineers pressured her not to testify at the hearing, telling her that doing so was not in her "best interest."
But Greenhouse told the committee that she had "exhausted all internal avenues to correct contracting abuses" and therefore felt that appearing before the committee was necessary to "remain true" to her oath of office.
Halliburton officials did not address specific charges contained in the congressional report or made at the hearing. Company spokesperson Cathy Gist-Mann suggested in a prepared statement that the hearing was politically motivated. "The only thing that's been inflated is the political rhetoric which is mostly a rehash of last year's elections," she said.
Along with charges of having favored KBR in the contract procurement process, Pentagon officials have been accused of helping shield KBR from United Nations auditors investigating the management of Iraqi oil revenues.
In addition to receiving US funds for its work in Iraq, KBR has also been paid with money from the Development Fund for Iraq (DFI), an account consisting of Iraqi oil revenues, assets seized from Saddam Husseinâ€™s regime and money from the defunct UN Oil-for-Food program.
Last fall, auditors with the International Advisory and Monitoring Board (IAMB), a panel established by the UN to monitor the DFI, requested Pentagon audits of KBR contracts paid for with DFI funds. The Pentagon responded by handing over heavily censored copies of audit reports. All information about $177 million in excess charges and most of the critical remarks about KBR were blacked out.
Representative Henry Waxman (D-California), a member of the House Committee on Government Reform, said that Pentagon officials told him in a private briefing that KBR officials had been allowed to dictate the redactions.
Two letters from a KBR official to the Pentagon last fall, which Waxman obtained by leak, appear to indicate that the company had ongoing conversations with DoD officials about the content of the audits and what should be redacted.
In the first letter, dated September 28, 2004, Michael Morrow, a KBR contracts manager, explained that in addition to redacting information in the audit it considered to be proprietary, KBR officials redacted "statements of the DCAA that we believe are factually incorrect or misleading and could be used by a competitor to damage KBRâ€™s ability to win and negotiate new work."
The second letter from Morrow to the Pentagon, also leaked to Waxman, dated October 5, 2004, stated KBRâ€™s agreement "to release to the United Nations" the DCAA audits in "redacted form" as discussed in the September 28 letter several other previous letters from KBR to the Pentagon.
Waxman also obtained an unedited copy of the Pentagon audit and published it on the Committee on Government Reformâ€™s web site alongside the redacted version.
Pentagon officials have defended the redactions, saying that the DoDâ€™s general counsel had advised them that details of the audits, including alleged overcharges, could not be released without the contractor's permission.
Representative Christopher Shays (R-Connecticut) accused the Pentagon of "deferring completely to the contractor's absurdly expansive view of what constitutes proprietary information [that] must be shielded from view."
The total value of Halliburtonâ€™s contracts in Iraq passed the $10 billion mark last fall, and despite mounting evidence that the company has committed numerous abuses, Halliburton continues to win coveted contracts from the military.
Just last week, the Army Corps of Engineers awarded Halliburton a new contract worth up to $1.25 billion to provide support services to US troops in the Balkans. The deal serves as a follow-up to Halliburtonâ€™s current contract in the region, awarded back in 1999.
Under the new contract, which is similar to subsidiary KBRâ€™s arrangements in Iraq, the company is supposed to wash clothes, serve meals, repair roads, build housing and provide other logistical support for troops stationed in the Balkans.
KBR was also recently tapped by the Pentagon to build a 220-bed prison for US detainees at GuantÃ¡namo Bay, Cuba. The contract, which is reportedly worth $30 million, calls on KBR to construct a two-story facility modeled on prisons in the US that includes day rooms, exercise areas, and medical facilities. It is to be completed by July 2006.