halliburton's No Bid Contracts

Halliburton's Deals Greater Than Thought
By Michael Dobbs
Washington Post

Thursday 28 August 2003

Halliburton, the company formerly headed by Vice President Cheney, has won contracts worth more than $1.7 billion under Operation Iraqi Freedom and stands to make hundreds of millions more dollars under a no-bid contract awarded by the U.S. Army Corps of Engineers, according to newly available documents.

The size and scope of the government contracts awarded to Halliburton in connection with the war in Iraq are significantly greater than was previously disclosed and demonstrate the U.S. military's increasing reliance on for-profit corporations to run its logistical operations. Independent experts estimate that as much as one-third of the monthly $3.9 billion cost of keeping U.S. troops in Iraq is going to independent contractors.

Services performed by Halliburton, through its Brown and Root subsidiary, include building and managing military bases, logistical support for the 1,200 intelligence officers hunting Iraqi weapons of mass destruction, delivering mail and producing millions of hot meals. Often dressed in Army fatigues with civilian patches on their shoulders, Halliburton employees and contract personnel have become an integral part of Army life in Iraq.

Spreadsheets drawn up by the Army Joint Munitions Command show that about $1 billion had been allocated to Brown and Root Services through mid-August for contracts associated with Operation Iraqi Freedom, the Pentagon's name for the U.S.-led war and occupation. In addition, the company has earned about $705 million for an initial round of oil field rehabilitation work for the Army Corps of Engineers, a corps spokesman said.

Specific work orders assigned to the subsidiary under Operation Iraqi Freedom include $142 million for base camp operations in Kuwait, $170 million for logistical support for the Iraqi reconstruction effort and $28 million for the construction of prisoner of war camps, the Army spreadsheet shows. The company was also allocated $39 million for building and operating U.S. base camps in Jordan, the existence of which the Pentagon has not previously publicly acknowledged.

Over the past decade, Halliburton, a Houston-based company that made its name servicing pipelines and oil wells, has positioned itself to take advantage of an increasing trend by the federal government to contract out many support operations overseas. It has emerged as the biggest single government contractor in Iraq, followed by such companies as Bechtel, a California-based engineering firm that has won hundreds of millions of dollars in U.S. Agency for International Development reconstruction contracts, and Virginia-based DynCorp, which is training the new Iraqi police force.

The government said the practice has been spurred by cutbacks in the military budget and a string of wars since the end of the Cold War that have placed enormous demand on the armed forces.

But, according to Rep. Henry A. Waxman (D-Calif.) and other critics, the Iraq war and occupation have provided a handful of companies with good political connections, particularly Halliburton, with unprecedented money-making opportunities. "The amount of money [earned by Halliburton] is quite staggering, far more than we were originally led to believe," Waxman said. "This is clearly a trend under this administration, and it concerns me because often the privatization of government services ends up costing the taxpayers more money rather than less."

Wendy Hall, a Halliburton spokeswoman, declined to discuss the details of the company's operations in Iraq, or confirm or deny estimates of the amounts the company has earned from its contracting work on behalf of the military. In an e-mail message, however, she said that suggestions of war profiteering were "an affront to all hard-working, honorable Halliburton employees."

Hall added that military contracts were awarded "not by politicians but by government civil servants, under strict guidelines."

Daniel Carlson, a spokesman for the Army's Joint Munitions Command, said Brown and Root had won a competitive bidding process in 2001 to provide a wide range of "contingency" services to the military in the event of the deployment of U.S. troops overseas. He said the contract, known as the Logistics Civil Augmentation Program, or LOGCAP, was designed to free uniformed personnel for combat duties and did not preclude deals with other contractors.

Carlson said the money earmarked for Brown and Root was an estimate, and could go "up or down" depending on the work performed.

The Joint Munitions Command provided The Washington Post with an updated version of a spreadsheet the Army released to Waxman earlier this month, giving detailed estimates of money obligated to Brown and Root under Operation Iraqi Freedom. Estimates of the company's revenue from Iraq have been increasing steadily since February, when the Corps of Engineers announced the company had won a $37.5 million contract for pre-positioning fire equipment in the region.

In addition to its Iraq contracts, Brown and Root has also earned $183 million from Operation Enduring Freedom, the military name for the war on terrorism and combat operations in Afghanistan, according to the Army's numbers.

Waxman's interest in Halliburton was ignited by a routine Corps of Engineers announcement in March reporting that the company had been awarded a no-bid contract, with a $7 billion limit, for putting out fires at Iraqi oil wells. Corps spokesmen justified the lack of competition on the grounds that the operation was part of a classified war plan and the Army did not have time to secure competitive bids for the work.

The corps said the oil rehabilitation deal was an offshoot of the LOGCAP contract, a one-year agreement renewable for 10 years. Individual work orders assigned under LOGCAP do not have to be competitively bid. But Waxman and other critics maintain that the oil work has nothing to do with the logistics operation.

The practice of delegating a vast array of logistics operations to a single contractor dates to the aftermath of the 1991 Persian Gulf War and a study commissioned by Cheney, then defense secretary, on military outsourcing. The Pentagon chose Brown and Root to carry out the study and subsequently selected the company to implement its own plan. Cheney served as chief executive of Brown and Root's parent company, Halliburton, from 1995 to 2000, when he resigned to run for the vice presidency.

At the time, said P.W. Singer, a Brookings Institution scholar and author of "Corporate Warriors," it was impossible to predict how lucrative the military contracting business would become. He estimates the number of contract workers in Iraq at 20,000, or about one for every 10 soldiers. During the Gulf War, the proportion was about one in 100.

Brown and Root's revenue from Operation Iraqi Freedom is already rivaling its earnings from its contracts in the Balkans, and is a major factor in increasing the value of Halliburton shares by 50 percent over the past year, according to industry analysts. The company reported a net profit of $26 million in the second quarter of this year, in contrast to a $498 million loss in the same period last year.

Waxman aides said they have been told by the General Accounting Office that Brown and Root is likely to earn "several hundred million more dollars" from the no-bid Corps of Engineers contract to rehabilitate Iraqi oil fields. Waxman, the ranking minority member on the House Government Reform Committee, had asked the GAO to investigate the corps' decision not to bid out the contract.

After a round of unfavorable publicity, the corps explained that the sole award to Brown and Root would be replaced by a competitively bid contract. But the deadline for announcing the results of the competition has slipped from August to October, causing rival companies to complain that little work will be left for anybody else. Bechtel, one of Halliburton's main competitors, announced this month that it would not bid for the corps contract and would instead focus on securing work from the Iraqi oil ministry.

In addition to the Army contracts, Halliburton has profited from other government-related work in Iraq and the war on terrorism, and has a $300 million contract with the Navy structured along similar lines to LOGCAP.

Pentagon officials said the increasing reliance on contractors is inevitable, given the multiple demands on the military, particularly since Sept. 11, 2001. Defense Secretary Donald H. Rumsfeld is a champion of "outsourcing," writing in The Post in May that "more than 300,000 uniformed personnel" were doing jobs that civilians could do.

Independent experts said the trend toward outsourcing logistic operations has resulted in new problems, such as a lack of accountability and transparency on the part of private military firms and sometimes questionable billing practices.

A major problem in Iraq, Singer said, has been the phenomenon of "no-shows" caused by the inhospitable security environment, including the killing of contract workers, including a Halliburton mail delivery employee earlier this month.

"At the end of the day, neither these companies nor their employees are bound by military justice, and it is up to them whether to show up or not," Singer said. "The result is that there have been delays in setting up showers for soldiers, getting them cooked meals and so on."

A related concern is the rising cost of hiring contract workers because of skyrocketing insurance premiums. Singer estimates that premiums have increased by 300 percent to 400 percent this year, costs that are passed on to the taxpayer under the cost-plus-award fee system that is the basis for most contracts.

The LOGCAP contract awarded to Brown and Root in 2001 was the third, and potentially most lucrative, super-contract awarded by the Army. Brown and Root won the first five-year contract in 1992, but lost the second to rival DynCorp in 1997 after the GAO criticized the Army for not adequately controlling contracting costs in Bosnia.