Halliburton: The Haste and Peril of War

The government contract depredations of Halliburton subsidiary, Kellogg, Brown and Root, are as legendary as they are legion. But that doesn't stop them from making bunches of money on DoD contracts where Pentagon inspectors have found obvious examples of contract abuse.

Why? Because the Army will pay KBR anyway.

The Army has decided to reimburse a Halliburton subsidiary for nearly all of its disputed costs on a $2.41 billion no-bid contract to deliver fuel and repair oil equipment in Iraq even though the Pentagon's own auditors had identified more than $250 million in charges as potentially excessive or unjustified.

The Army's position appears to be, hey, it's a war zone and war is hell. What's a few hundred million bucks here or there?

The KBR fuel deal has been under scrutiny since late 2003, when it was learned that KBR was charging triple or more what other companies were and 20 times the price of fuel at an average Iraqi gas station then. KBR maintained that the cost was due to their supplier, Kuwaiti company Altanmia, whom they claimed they had to do business with because of

the hard-line negotiating stance of the state-owned Kuwait Petroleum Corporation.

The Army now also cites this as one of the legitimate reasons for KBR's bloated pricing. Apparently, neither the Army nor the NY Times bothered to check out that claim, which is, as might be suspected, just more KBR nonsense. And it is entirely mendacious that the Army claims this, since the Pentagon was well aware of the fact that this was not likely the case:

This spat centers on a letter the Kuwait Petroleum Corp. says it sent to KBR in late January. In the letter, the state-owned oil company said it was prepared as of February to supply gasoline and other fuels directly to KBR, thus bypassing Altanmia and significantly reducing the U.S. government's cost.

KBR employees in Kuwait have told Army officials that they never received the letter, though officials in Kuwait said there is proof that the Kuwaitis faxed the letter to KBR offices.

Since it surfaced last week, the KPC letter has caused consternation within the Pentagon, in large part because the Army ruled in December that Kuwait's petroleum supplier had given KBR no choice but to deal directly with Altanmia.

The confusion over the letter has mystified Kuwait Petroleum officials. One petroleum industry executive in Kuwait said the letter was sent by DHL to Army Corps officials in Camp Doha. The KBR version went the same day by fax, he said, citing a time-stamped receipt that shows the transmission went through.

Moreover, the letter prompted a quick response from Altanmia executive Waleed Al Humaidhi, who in a letter to Kuwait Petroleum on the same day complained bitterly that his firm had been circumvented.

The decision to go around Altanmia was approved by the Kuwaiti oil minister several days before the letter was sent, one executive said, and was the culmination of a discussion begun last November, when Kuwait Petroleum initially sought Army permission to deal directly with the U.S. instead of through Altanmia. At that time, the Army allegedly insisted on keeping Altanmia as an intermediary.

KBR simply claims that they never received the letter. Or the fax. Which might be true, since nothing else at KBR seems to work the way it is supposed to. It is amazing how all these things that work for everyone else never seem to work properly for DoD contractors under investigation.

So, what's the upshot of a two year audit that revealed $200+ million in likely contract fraud? Well, the DoD's own Defense Contract Audit Agency is not at all happy with the Army's decision and Henry Waxman (D-Ca) sums it up succinctly:

Halliburton gouged the taxpayer, government auditors caught the company red-handed, yet the Pentagon ignored the auditors and paid Halliburton hundreds of millions of dollars and a huge bonus.

It is what one might call a "pro-business environment."