|
Halliburton/Brown & Root
Contracting Abuses
- In a 1997 report, the General Accounting Office revealed that Brown & Root Services -- performing work under an earlier LOGCAP contract in the Balkans -- charged the Army $85.98 per sheet of plywood. The actual price tag was $14 per sheet.
- In performing work in Kosovo, Brown & Root Services overcharged taxpayers by overstaffing projects and providing more goods and services than necessary, according to a 2000 GAO report. For example, it provided nearly twice the electricity necessary for the army’s facilities and cleaned offices four times a day.
- A former employee charges that Brown & Root defrauded the government out of millions by inflating prices for repairs and maintenance at the former Fort Ord, California military installation. The Justice Department and the Department of Defense are reportedly investigating the matter.
- Brown & Root’s parent company, Halliburton, is the subject of an investigation by the Securities and Exchange Commission (SEC) and a shareholder lawsuit for allegedly issuing false and misleading statements over its accounting on construction jobs.
|
Halliburton's Work for
Countries Linked to Terrorism
Iran
President Bush memorably named Iran as part of the “axis of evil” in his 2002 State of the Union address, and according to the State Department’s web site, “Iran remains a major state sponsor of terrorism.”
Citing the country’s terrorist links, President Clinton issued executive orders (12957 and 12959) in 1995 banning trade with and investment in Iran. Congress also passed the Iran-Libya Sanctions Act in 1996, which authorized sanctions against foreign companies involved in Iran’s oil industry.
Halliburton however, has circumvented these restrictions -- supplying Iran with oil equipment. In fact, a Halliburton subsidiary, which is registered in the Cayman Islands, operates an office in the capital city of Tehran. Apparently, the office offers services from Halliburton units around the world, and its signs and brochures bear the parent company’s signature red emblem, according to Dow Jones (2/1/01). Vice President Cheney has defended the activities of his former company, arguing that it is legally allowed to operate in Iran through foreign subsidiaries. Analysts, however, have disagreed with this claim, suggesting that Halliburton’s dealings in Iran may violate U.S. laws.
Iraq
In 1990, President George H.W. Bush imposed economic sanctions on Iraq, including a complete trade embargo, following the country’s invasion of Kuwait.
These restrictions have since been lifted following the recent war, but according to the Washington Post, Halliburton performed work in Iraq while the sanctions were still effective -- at a time when Vice President Cheney was leading the company. In fact, Halliburton held stakes in two firms that engaged in contracts to sell more than $73 million in oil production equipment and spare parts to Iraq, according to the Washington Post (6/23/01).
Libya
Libya has been implicated in a number of terrorist attacks, including attacks at the Rome and Vienna airports in 1985, and the 1988 bombing of Pan Am flight 103, which killed 270 people.
Over the past three decades, the United States has imposed more than 20 sanctions on the country, including a total ban on direct import and export trade, commercial contracts, and travel-related activities instituted in 1986.
Despite these sanctions, Halliburton, through its subsidiary Brown & Root, has performed work on a water project in Libya since the 1980s. This “Great Man-Made River Project,” as it’s called, involves constructing a system of underground pipes and wells allegedly intended for transporting water. The pipes, however, are big enough to be accessed by military vehicles and leading experts believe that the project actually has a military purpose, according to the New York Times (12/02/97).
|
Typically, when the government is awarding such a contract, particularly one of this size, it releases a project description on which anyone can bid. Prospective contractors are then evaluated based on their quality, reliability, and price.
The fact that this process was not adhered to -- that KBR was handpicked by the administration -- has caused many to cry foul. Vice President Cheney, after all, led Halliburton prior to the 2000 election and collected more than $33 million in stock following his departure. In fact, Cheney continues to profit from the company’s success,
receiving payments of more than $160,000 a year. The White House quickly denied charges that the vice president was involved or that favoritism played a role. Yet suspicion persisted as the administration refused to release even basic information about the deal with KBR.
Details Withheld
The contract, issued by the U.S. Army Corps of Engineers, was shrouded in secrecy from the beginning -- it was signed March 8 but was not announced until March 24. Even then, the Corps released only a vague description of the work to be performed.
The Corps did not reveal the potential value of the contract until April 8, a disclosure that came only in response to questions from Rep. Henry Waxman (D-CA). As interest in the contract grew, the administration continued to stonewall and in certain instances provided misleading information. This was possible because the KBR contract and the documents justifying and approving the Corps’ decision to forego competitive bidding are classified and unavailable for public review.
Initial reports from the Bush administration, as well as Halliburton, indicated that the deal involved only short-term emergency work -- putting out oil well fires and repairing damage. In May, however, the Corps acknowledged that the deal carried a two-year term, and included “operation of facilities” and “distribution of products,” allowing KBR to profit from producing and distributing Iraqi oil.
Shortly thereafter, the administration declared that the KBR deal would be cut short and replaced with a contract awarded through competitive bidding. In June, however, Gary Loew, planning director of the Corps’ project, cast doubt on this assurance, stating, “There may not be time to actually award a second contract.” Even if a replacement contract is awarded, the Corps has suggested that the deal with KBR may remain in place as late as January 2004 -- hardly a short-term job.
Without competitive bidding, U.S. taxpayers cannot be assured that they are getting the best plan at the best price. In this case, the administration claimed that it had little choice -- that quick action was required and that KBR was in the best position to deliver.
During the Gulf War, acts of sabotage by Iraqi troops damaged more than 700 oil wells. In November 2002, as war loomed, the Department of Defense (DOD) began planning for a similar or possibly worse scenario. Under a preexisting contract, the U.S. Army Material Command directed Brown & Root Services, a division of KBR, to develop contingency plans for repairing and continuing operations of the Iraqi oil infrastructure. This contract, the Logistics Civil Augmentation Program (LOGCAP), which was awarded competitively in December of 2001, allows the company to provide a wide range of logistical services to the Army.
The Corps claims it did not learn until February 2003 -- less than two months before the start of the war -- that it was responsible for executing the plan to repair and operate Iraq’s oil infrastructure. “When the Corps considered ways to accomplish this mission,” Lieutenant Army General Robert Flowers explained, “there was only one practical alternative: use KBR [Kellog Brown & Root] who was already mobilized in the region and was fully knowledgeable of the mission.”
As war rapidly approached, a task such as putting out oil-well fires may have been urgent enough to justify the circumvention of standard procedures. After all, an open competitive bidding process could take months. It is not clear, however, why long-range tasks, such as the distribution of Iraqi oil, were included in the KBR contract and not opened for competition.
An Open-Ended Contract
On top of the March contract, KBR has also received more than $425 million in work from the Army for various other projects relating to Iraq. KBR did not have to bid to receive many, if not all, of these jobs -- the work came in the form of “task orders” or assignments under the earlier LOGCAP contract.
The LOGCAP contract was awarded to KBR on a “cost-plus” basis, meaning that the contractor receives payment for its expenditures as well as an additional percentage of those costs. Such awards are susceptible to abuse because they give companies an incentive to pad their profits by increasing costs. The fact that work is being awarded to KBR in this way is particularly alarming given the company’s track record (see boxes on right).
KBR’s work in Iraq under LOGCAP has included the repair of “an extravagant presidential palace being used by Americans,” according to the Los Angeles Times (5/9/03), as well as assistance to the Pentagon’s Office of Reconstruction and Humanitarian Assistance (ORHA). When asked specifically what is covered by KBR’s assignment to assist ORHA, an official with the reconstruction agency told the Los Angeles Times: “I guess the real question is, what doesn’t it cover?”
At least three of the “task orders” given to KBR were each worth $60 million or more, yet they were treated merely as small duties to be carried out under LOGCAP. “One of the unique features of the LOGCAP contract is that it apparently allowed Halliburton to profit from virtually every phase of the war with Iraq,” noted Waxman in a letter to the acting secretary of the Army.
KBR also earned $183 million from operations in Afghanistan and has a $300 million contract with the Navy similar to LOGCAP,
according to the Washington Post.
More Secret Deals
The Bush administration followed a familiar pattern in awarding contracts to repair Iraq’s crumbling infrastructure (including water systems, power plants, roads and bridges, and schools and hospitals). In particular, this included a $680 million contract won by the engineering-construction firm Bechtel Corp. -- a company that shelled out more than $770,000 to Republicans between 1999 and 2002, according to the Center for Responsive Politics.
This contract, the largest of the post-war awards, was the product of a closed process in which the administration secretly invited a number of politically well-connected companies to submit bids. These lucky invitees -- Bechtel, Fluor Corp., KBR, Louis Berger Group Inc., Parsons Corp., and Washington Group International Inc. –-
contributed a combined $3.6 million in individual, PAC, and soft money donations between 1999 and 2002, 66 percent of which went to Republicans. Interestingly, of these companies, Bechtel -- the ultimate winner -- contributed the largest amount of money to Republicans. Bechtel also claims George Schultz, former secretary of State under the first Bush administration, as a board member.
Scandal-ridden telecommunications firm MCI, formerly known as WorldCom, has also profited from the administration’s backroom deals -- receiving a no-bid $45 million contract to construct a small wireless network in Iraq.
Telecom competitors cried foul when they learned of the contract, objecting not only to the secretive nature of the deal, but also to the government’s indifference to WorldCom’s disgraceful record. Earlier this year, WorldCom agreed to pay a $500 million fine to the Securities and Exchange Commission for overstating its cash flow by nearly $4 billion between 2000 and 2002. This accounting scandal sent the company’s stock plummeting and led WorldCom to file for bankruptcy in 2002. In July of 2003, the General Services Administration temporarily banned MCI/WorldCom from receiving federal contracts after determining that the company “lacks the necessary controls and business ethics.” Most recently, AT&T accused MCI/WorldCom of improperly routing domestic calls through Canada to avoid paying fees to local phone companies. The Justice Department is currently investigating the matter.
Rival telecommunications firms have also been quick to point out that MCI/WorldCom -- which contributed nearly $2.5 million to Republicans from 1997-2002 -- has no experience building cellular networks.
Unanswered Questions
The public cannot be assured that KBR, Bechtel, and MCI/WorldCom represent the best options in the absence of open competitive bidding. As a result, questions linger over whether favoritism played a role.
In the case of KBR, why did the administration decide to forgo competitive bidding even for long-term work? Why is so much work being routed through KBR’s open-ended LOGCAP contract, which includes incentives to run up costs? Why was the contract for infrastructure repairs closed to just five handpicked companies (all generous contributors to the Republican Party)? Why was MCI/WorldCom awarded a no-bid contract given its suspect qualifications and even more suspect ethical transgressions?
These questions can only be answered if the administration lifts the veil of secrecy and fully explains the contracts. Unfortunately, this seems unlikely considering the track record.