[Mb-civic] Halliburton's Iraq Contracts Now Worth over $10 Billion

[Michael Butler]

Also see below:     
Expenditure Table    €

     Go to Original

    Rep. Henry A. Waxman Ranking Minority Member
    Committee on Government Reform U.S. House of Representatives
    December 9, 2004

     Fact Sheet 
    Halliburton's Iraq Contracts Now Worth over $10 Billion

    The value of Halliburton's Iraq contracts has crossed the $10 billion
threshold. Halliburton has now received $8.3 billion in Iraq work under its
LOGCAP troop support contract and $2.5 billion under its no-bid Restore
Iraqi Oil (RIO) contract, a total of $10.8 billion.

     The mounting value of the contracts has been accompanied by a growing
list of concerns about Halliburton's performance. Over the last year,
government auditors have issued at least nine reports criticizing
Halliburton's Iraq work, and there are multiple criminal investigations into
overcharging and kickbacks involving Halliburton's contracts. Former
Halliburton employees have testified before Congress about egregious
instances of over billing. Despite these concerns, the Bush Administration
continues to reject the recommendations of its auditors that 15% of
Halliburton's LOGCAP reimbursements be withheld until the company can
provide better substantiation for its charges.

     Value of the Contracts

    Halliburton has several major contracts in Iraq. The largest, called the
Logistics Civil Augmentation Program (LOGCAP), is a cost-plus contract to
provide support services to the troops. As of December 2, 2004, the value of
Halliburton's Iraq task orders under LOGCAP was $8.26 billion. (1)

    The second largest Halliburton contract is the cost-plus RIO contract to
restore and operate Iraq's oil infrastructure, which Halliburton was awarded
on a no-bid basis in March 2003. The value of the work Halliburton performed
under this contract is $2.51 billion. (2)

    The combined value of these two contracts is $10.77 billion. This is
significantly more than any other contractor has been awarded in Iraq. For
example, the maximum value of Bechtel's Iraq infrastructure contracts is
$2.8 billion. Halliburton will reap profits of between $133 million and $424
million on its two contracts. (3)

    The actual value of Halliburton's Iraq contracts is likely higher than
$10.77 billion. In January 2004, Halliburton received a follow-on oil
contract for southern Iraq worth up to $1.2 billion. The Administration has
not disclosed the value of the work given to Halliburton under this
contract.

     Investigations and Audits

    At the same time that the value of Halliburton's contracts is
increasing, auditors are finding extensive problems with Halliburton's
billings, and criminal investigations of Halliburton and its employees
continue.

     Auditors from the Defense Contract Audit Agency (DCAA), the Government
Accountability Office (GAO), and the Coalition Provisional Authority
Inspector General (CPA IG) have repeatedly and consistently criticized
multiple aspects of Halliburton's activities in Iraq. In nine different
reports, these government auditors have found widespread, systemic problems
with almost every aspect of Halliburton's work in Iraq, from cost estimation
and billing systems to cost control and subcontract management.

     Key findings from these audits include the following:
    €      In December 2003, a DCAA draft audit reported that Halliburton
overcharged the Defense Department by $61 million to import gasoline into
Iraq from Kuwait through September 30, 2003. (4)
    €     On December 31, 2003, a DCAA "Flash Report" audit found
"significant" and "systemic" deficiencies in the way Halliburton estimates
and validates costs. According to the DCAA audit, Halliburton repeatedly
violated the Federal Acquisition Regulation and submitted a $2.7 billion
proposal that "did not contain current, accurate, and complete data
regarding subcontract costs." (5)
    €     On January 13, 2004, DCAA concluded that Halliburton's
deficiencies "bring into question [Halliburton's] ability to consistently
produce well-supported proposals that are acceptable as a basis for
negotiation of fair and reasonable prices," and it urged the Corps of
Engineers to "contact us to ascertain the status of [Halliburton's]
estimating system prior to entering into future negotiations." (6)
    €     In a May 13, 2004, audit, DCAA reported "several deficiencies" in
Halliburton's billing system that resulted in billings to the government
that "are not prepared in accordance with applicable laws and regulations
and contract terms." DCAA also found "system deficiencies resulting in
material invoicing misstatements that are not prevented, detected and/ or
corrected in a timely manner." The report emphasized Halliburton's
inadequate controls over subcontract billings. The auditors "identified
inadequate or nonexistent policies and procedures for notifying the
government of potential significant subcontract problems that impact
delivery, quality, and price" and determined that Halliburton "does not
monitor the ongoing physical progress of subcontracts or the related costs
and billings." (7) 
    €     On June 25, 2004, the CPA IG found that, as a result of poor
oversight, Halliburton charged U. S. taxpayers for unauthorized and
unnecessary expenses at the Kuwait Hilton Hotel. According to the IG, the
overcharges would have amounted to $3.6 million per year. (8)
    €     A July 26, 2004, CPA IG audit report found that Halliburton "did
not effectively manage government property" and that the company's property
records "were not sufficiently accurate or available to properly account for
CPA property items." The IG "projected that property valued at more than
$18.6 million was not accurately accounted for or was missing." (9)
    €     In July 2004, GAO found ineffective planning, inadequate cost
control, and insufficient training of contract management officials under
LOGCAP in Iraq. GAO reported that, when Halliburton acted as a middleman for
the operation of dining halls, costs were over 40% higher. (10)
    €     In an August 16, 2004, memorandum, DCAA "identified significant
unsupported costs" submitted by KBR, a Halliburton subsidiary, and found
"numerous, systemic issues . . . with KBR's estimates." According to DCAA,
"while contingency issues may have had an impact during the earlier stages
of the procurements, clearly, the contractor should have adequate supporting
data by now." When DCAA examined seven LOGCAP task orders with a combined
proposed value of $4.33 billion, auditors identified unsupported costs
totaling $1.82 billion. (11)
    €     On November 23, 2004, the Special Inspector General for Iraq
Reconstruction (formerly the CPA IG) examined a $569 million LOGCAP task
order and found that Halliburton "did not provide . . . sufficiently
detailed cost data to evaluate overall project costs or to determine whether
specific costs for services performed were reasonable." The IG concluded
that the Army "did not receive sufficient or reliable cost information to
effectively manage" the task order. (12) Multiple criminal investigations of
Halliburton's Iraq contracts are also ongoing. The Justice Department is
investigating Halliburton's admission that two of its employees received up
to $6.3 million in kickbacks to steer LOGCAP subcontracts to a Kuwaiti
contractor. (13) The Defense Department Inspector General, the FBI, and the
Justice Department are investigating allegations of fraud and overcharging
for gasoline under the RIO contract. (14)

    Disclosures by Former Employees and Independent Experts

    The concerns expressed by government auditors have been corroborated by
the testimony of former Halliburton employees. Over the past year, six
former employees came forward publicly to provide Congress with information
about egregious overcharges by Halliburton. Others have contacted
congressional staff privately to echo these concerns. For example:
    €      Marie deYoung, a Halliburton logistics specialist, testified
about subcontracts under which Halliburton paid $45 per case of soda and
$100 per 15-pound bag of laundry. Ms. deYoung also disclosed that
Halliburton did not comply with the Army's request to move Halliburton
employees from a five-star hotel in Kuwait, where it cost taxpayers
approximately $10,000 per day to house the employees, into air-conditioned
tent facilities, which would have cost taxpayers under $600 per day. (15)
    €     Henry Bunting, a Halliburton procurement officer, described how he
and other buyers were instructed to split large purchase orders into
multiple purchase orders below $2,500 in order to avoid the requirement to
solicit multiple bids. Supervisors routinely told the employees responsible
for purchasing: "Don't worry about price. It's cost-plus." (16)
    €     David Wilson, a convoy commander for Halliburton, and James
Warren, a Halliburton truck driver, testified that brand new $85,000
Halliburton trucks were abandoned or "torched" if they got a flat tire or
experienced minor mechanical problems. Mr. Warren brought these and other
concerns to the personal attention of Randy Harl, the president and CEO of
KBR. He was fired a few weeks later. (17)
    €     Mike West, a Halliburton labor foreman, described how he and other
Halliburton employees spent weeks in Iraq with virtually nothing to do, but
were instructed to bill 12-hour days for 7 days a week on their timesheets.
In addition, his superior directed him to buy unnecessary equipment, telling
him: "Don't worry about it. It's a cost-plus-plus contract." (18)

    Similarly, independent experts have criticized Halliburton's inflated
gasoline prices under the RIO contract. Phil Verleger, a California oil
economist and the president of a consulting firm, said of Halliburton's
price: "It's as if they put the gasoline on the Queen Mary and take it
around the globe before they deliver it." (19) Jeffrey Jones, until recently
the Director of the Defense Energy Support Center, stated: "I can't
construct a price that high." (20) Another expert, who asked that his
identity not be disclosed, characterized Halliburton's prices as "highway
robbery."

     Failure To Withhold Funds

    Reflecting the growing problems with Halliburton's Iraq contracts,
government auditors have recommended that the Army begin to withhold partial
payment to Halliburton under LOGCAP as required by the Federal Acquisition
Regulation. On August 16, 2004, DCAA strongly encouraged the Army to begin
withholding 15% of Halliburton's reimbursements, stating, "It is clear to us
KBR will not provide an adequate proposal until there is a consequence."
(21) On November 23, the Special Inspector General for Iraq Reconstruction
supported this recommendation with respect to the $569 million LOGCAP task
order it attempted to audit. (22)

    Instead of following the advice of these independent auditors, the Army
has refused to withhold payments for the last eight months. To the contrary,
the Army has given Halliburton multiple extensions to provide the adequate
cost estimates and supporting data needed to finalize the terms of the
contract.

 Notes
    (1) U. S. Army Field Support Command, Media Spreadsheet for AFSC LOGCAP
(Dec. 2, 2004). 
    (2) U. S. Army Corps of Engineers, Frequently Asked Questions: Engineer
Support to Operation Iraqi Freedom (Oct. 7, 2004).
    (3) Under Halliburton's cost-plus contracts, the government reimburses
the company for its actual costs and then pays an additional fee. For
LOGCAP, Halliburton receives a base fee of 1% of its costs and an additional
award fee of up to 2%. This yields a profit range of $83 million to $248
million. For RIO, Halliburton's base fee is 2% of its costs and its
additional award fee is up to 5%. This yields a profit range of $50 million
to $176 million. 
    (4) Department of Defense, DOD News Briefing (Dec. 11, 2003). The
minority staff of the House Government Reform Committee later determined
that the total overpayment to Halliburton through April 1, 2004, was $167
million. See Minority Staff, Committee on Government Reform, Halliburton's
Gasoline Overcharges (July 21, 2004).
    (5) Defense Contract Audit Agency, Audit Report No. 3311-2004K24020001
(Dec. 31, 2003). 
    (6) Defense Contract Audit Agency, Status of Brown & Root Services (BRS)
Estimating System Internal Controls (Jan. 13, 2004).
    (7) Defense Contract Audit Agency, Audit Report No. 3311-2002K11010001
(May 13, 2004). 
    (8) Coalition Provisional Authority Inspector General, Federal
Deployment Center Forward Operations at the Kuwait Hilton (June 25, 2004).
    (9) Coalition Provisional Authority Inspector General, Audit of the
Accountability and Control of Material Assets of the Coalition Provisional
Authority in Baghdad (July 26, 2004).
    (10) Government Accountability Office, DOD's Extensive Use of Logistics
Support Contracts Requires Strengthened Oversight (July 2004).
    (11) Memorandum from Defense Contract Audit Agency to U. S. Army Field
Support Command (Aug. 16, 2004).
    (12) Memorandum from Special Inspector General for Iraq Reconstruction,
Task Order 0044 of the Logistics Civilian Augmentation Program III Contract
(Nov. 23, 2004). 
    (13) House Committee on Government Reform, Hearings on Unprecedented
Challenges: Contracting and the Rebuilding of Iraq (June 15, 2004).
    (14) Letter from John R. Crane, Assistant Inspector General, Department
of Defense, to Rep. Henry A. Waxman (June 30, 2004); FBI Investigating
Contracts with Halliburton, New York Times (Oct. 29, 2004).
    (15) House Committee on Government Reform, Hearings on Contracting and
the Rebuilding of Iraq: Part IV, 108th Cong. (July 22, 2004).
    (16) Senate Democratic Policy Committee, Hearings on Iraq Contracting
Abuses (Feb. 13, 2004).
    (17) House Committee on Government Reform, supra note 15.
    (18) Statement of Mike West (June 6, 2004).
    (19) The High Price of Gasoline for Iraq, NBC News (Nov. 5, 2003).
    (20) Army Eyes Halliburton Import Role in Iraq, Associated Press (Nov.
5, 2003). 
    (21) Defense Contract Audit Agency memorandum, supra note 11.
    (22) Special Inspector General for Iraq Reconstruction memorandum, supra
note 12. 

  

    Go to Original 

    This table describes, to the penny, the profits reaped by Halliburton
under the LOGCAP contracts for Operation Enduring Freedom, Operation Iraqi
Freedom, and other unnamed expenditures. The number at the bottom reads
$9,073,560,035...that is 'billion' with a 'B.'

  

  -------

   Jump to TO Features for Friday December 10, 2004   


 © Copyright 2004 by TruthOut.org