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Self-Dealing and the War Service Industry, Part II

(Image: Jared Rodriguez / Truthout)

Part of the Series

In last week’s column, we discussed KBR’s main support contract for the Iraq war, called LOGCAP. Charles Smith and Dina Rasor discussed how, despite Mr. Smith’s efforts as lead oversight on this contract to withhold money from KBR until they produced financial documentation, KBR hired a retired general to successfully pressure the Army to overturn Mr. Smith’s and the Defense Contract Audit Agency’s (DCAA) efforts at responsible oversight.

In Part II of this series we will explore the cronyism and self-dealing with the other major military service contract in Iraq, the Restore Iraq Oil (RIO) contract, and the brave woman whistleblower who also refused to go along and allow KBR to break contract rules to enrich themselves, but was thwarted in her efforts to do the right thing on behalf of the troops and the country. In examining this contract, we see the same favoritism toward KBR (Halliburton) that occurred with LOGCAP contract. Army leadership, especially at the Army Corps of Engineers (the Corps) took steps that broke laws and regulations and threatened civilian control just to ensure that this work went to KBR. It is astonishing to see that the goal of these two Iraq war contracts was to steer billions of dollars to KBR and their parent company, Halliburton. In the RIO contract, you can see the involvement of Richard Cheney while he was vice president, but still receiving pension money from Halliburton as the former president of Halliburton (who at the time owned KBR.)

Solutions - Making Government WorkIn the third part of this series, we will follow the government people who acquiesced to this cronyism and fraud and show how they benefited by turning a blind eye toward KBR wrongdoing either through promotions or lucrative post-government jobs. We will also explore in next week’s column, the long-term destructive results that this type of self-dealing has on our government and the government workers we rely on to effectively spend our tax dollars, especially during war.

Restore Iraqi Oil Sole Source to KBR

In October 2004, a meeting was held by the Energy Infrastructure Planning Group, a task force headed by Michael Mobbs, a “special adviser” to Under Secretary Douglas Feith, one of Rumsfeld’s neoconservatives that had been pushing for war in Iraq for years. Mobbs had been a Department of Defense (DoD) official in the Reagan White House, and between his appointments in the Reagan administration and the George W. Bush administration, he had been a lobbyist for defense contractors such as Lockheed and foreign governments. The Field Support Contracting Division Chief (Charles Smith, the co-author of this article), Army Sustainment Command, was asked to attend this meeting. He was asked to attend because he managed the Army’s LOGCAP contract with KBR, a division of Halliburton. The Group had decided that they wanted KBR to accomplish two missions for the federal government immediately after the invasion of Iraq. They would:

  • Extinguish oil well fires started by the Saddam government. This had been an Iraqi tactic in the first Gulf War and was expected in this second war and,
  • Restore the Iraqi oil production system to a working, revenue-generating system.

This group was composed of intelligence specialists from the CIA and DoD, oil production engineers and former executives in large oil companies. They were convinced that the Iraqi oil production infrastructure was in bad shape, as little maintenance had been done in years. They also feared that the war would result in further destruction of facilities.

At the meeting, they requested that the Army use the KBR LOGCAP contract to prepare plans for accomplishing the two missions. They were disappointed by what they were told. The Army representative told them that planning was a function of the LOGCAP contract, but the oil restoration project was outside the scope of the LOGCAP contract. Upon receipt of a legal determination by a DoD senior counsel, the Army representative agreed to obtain a plan under the LOGCAP contract. Several parameters were laid out:

  • The plan must be neutral to KBR and capable of implementation by other contractors.
  • Implementation of oil-well-fire extinguishing was considered combat support and could be done under the LOGCAP contract.
  • Implementation of the restoration of the Iraqi oil production facilities was not combat support and could not be done under the LOGCAP contract.
  • Army Field Support Contracting would be glad to do the contracting for the restoration of oil facilities as a separate project. A market survey had identified several large contractors capable of the work and an expedited, classified competition was quite feasible.

This set of stipulations was not accepted by this group because they had already decided to use KBR without competition prior to this initial meeting. (Mr. Mobbs verified this in a meeting with members and staff of the House Committee on Investigations and Government Reform.)

At a follow-on meeting on February 18, 2003, the chief of field support contracting was told that the Secretary of the Army Thomas White (a former Enron executive who used his past military career to get sole-source military contracts for Enron), after a conversation with Lt. Gen. Robert Flowers, commander of the Corps, had decided to transfer both of these missions to the Corps. It was well known in Army circles that the Corps’ contracting practices were full of cronyism and sole-source contracting to favored contractors.

True to form, the Corps documentation and plans were written to have KBR perform these missions on a sole-source basis. While the Corps maintained that their staff was responsible for the acquisition strategy, reporters soon found out that the plan to use KBR was coordinated with Vice President Cheney’s office and approved by Deputy Secretary of Defense Paul Wolfowitz and Under Secretary for Policy Feith.

However, the Corps ran into their own head of contracting, Ms. Bunnatine Greenhouse. Ms. Greenhouse, the first African-American woman to hold such a position, had been brought into the Corps by a reform-minded general to specifically to stop the sole-source contracting to favorite contractors and to play by the legal contracting rules and regulations. She took her job seriously and was a stickler for the rules despite the good-ol’-boy system that had been in place for years.

Ms. Greenhouse was not convinced that there was sole-source justification because other firms could perform the mission just as well as KBR. The rationale for a sole-source contract was that Halliburton (KBR) had already done the contingency planning for this work and that additional competition would be a wasteful duplication of effort. Yet, the plans were required to be written so that it could be handed off to another contractor for performance. Ms. Greenhouse knew that other capable contractors, such as Fluor and Bechtel, existed and a true competition could be done to save money and insure that the best contractor for the job would be chosen.

She also knew that DCAA had already found serious flaws with KBR business systems based on the mess that was going on with the LOGCAP contract. KBR’s cost accounting system was not in compliance with federal regulations. Based on this fact alone, KBR was ineligible to receive new cost type contracts, such as the planned RIO contract.

KBR had an additional problem with the competition. Since KBR had written the plan, they had an “Organizational Conflict of Interest (OCI),” basically a competitive advantage. According to the federal acquisition regulations, such a conflict of interest would disqualify KBR from even bidding for the work. So, the Corps just decided not to have a competition, and KBR then would not have an advantage. They just bent the rules and gave the contract sole source to KBR. No competitors, no competition and everyone was happy but the taxpayers who have to foot the bill. This example shows how bizarre the contracting system had become for these wartime contracts.

On February 28, 2003, Mr. Claude Bolten, the assistant secretary of the Army for Acquisition, Logistics and Technology, signed a determination to award an approximately $7 billion sole-source contract to KBR. Ms. Greenhouse did not want, as the top contracting officer, to sign a document that she knew was fundamentally at odds with basic contracting rules and regulations. But there was pressure to get these contracts in place because of the war, so she reluctantly signed the document, but insisted on adding a note that at a minimum, the effort should be for only one year while a competition was conducted.

Even though Ms. Greenhouse was the civilian in charge of contracting, which gave her the overall approval power in these contracting situations, Lieutenant General Flowers blatantly ignored the civilian control and checks and balances with a breathtaking power grab to control the contracting and bypass Ms. Greenhouse and her pesky rules and regulations. As her future legal complaint against the Army explained:

Eventually, LTG Flowers, upon obtaining Command of the USACE [Army Corps of Engineers], enacted a policy that no SES [Senior Executive Service, top civilian personnel] could tell a Commander “No” about any action that they wanted to do, regardless of the judgment of the executive. This was accomplished in part by permitting Commanders, by using a “Just Do It Card” issued by the CG [Commanding General], to affect the conduct of contracting because the signed “Just Do It Card” by LTG Flowers allowed individuals outside the contracting lineage of authority to interfere in the contracting process without having to seek the advice from individuals that were statutorily and regulatorily responsible and accountable for contracting actions.

Fuel Delivery

Intertwined with RIO was another Corps contract with KBR for delivery of fuel for Iraqi domestic use. This fuel delivery contract was almost immediately the subject of investigation because of KBR practices. The fuel was purchased at well-above-market prices and the costs passed along to the United States. Rep. Henry Waxman, in a letter to the Corps, stated that information available to his committee indicated KBR was charging twice as much as other oil importers for operations in Iraq.

Lieutenant General Flowers had responded to allegations that KBR was over charging for oil by signing a waiver for KBR, so they did not have to submit to the Corps and DCAA cost and pricing data for their oil contract, unilaterally declaring the prices as “fair and reasonable” with no analysis. Amazingly, this unilateral waiver allowed KBR to hide the true costs for the oil from the government and the public. The waiver was issued at the request of KBR just nine days after DCAA stated that the company was refusing to turn over internal documents related to its audits of KBR contracts. On December 11, DCAA found in a preliminary audit that KBR and its subcontractor Altanmia had overcharged the government by at least $61 million through September 2003.

The Corps continuing its favored treatment for KBR by issuing a document which supposedly justified the prices charged by KBR. Representative Waxman described this document as a “poorly substantiated document that relies on conjecture, not facts.”

KBR had awarded the subcontract to Altanmia in a procurement process that took only one day. There were supposedly two other bidders, but they were not identified. Altanmia had never performed oil transportation and delivery in the past. There was no analysis and negotiation of prices – KBR just accepted the proposed price.

The pattern was consistent with history of the Corps the same way Lieutenant General Flowers took care of KBR on the RIO contract. Civil servants in the Corps described intense political pressure to make this award from the American Embassy in Kuwait. The pressure worked, and as a consequence, KBR made unearned profits and the taxpayer lost again.

Follow-On Competition

The follow-on competition, which Ms. Greenhouse stated should begin immediately after the sole-source award, instead dragged out for months. While the sole-source RIO contract to KBR was awarded in February 2003, it was not until June 23 that a pre-solicitation notice for follow-on competition was issued by the Corps.

During that period, the Corps was developing the Final Work Plan for restoring the Iraq oil infrastructure. This document is co-written by the Corps; the Iraq Ministry of Oil; and, improperly, by KBR. It lays out the projects need to complete the mission, and in its first version, assigned over 80 percent of the work to KBR and the rest to the Ministry. Despite promises, this version had no plans for competition.

The July pre-proposal conference held by the Corps for interested bidders was a strange meeting. The draft solicitation used the estimated total amount of work remaining for RIO, but bidders were counseled that they were not bidding on that amount. It was already preordained that most of that work would be obligated to KBR under their current contract. The Corps could not explain on what bidders in the competition would be bidding. The Corps downplayed the fact that a meeting had been held the week before with the Corps, the Ministry of Oil and KBR to make all of the essential decisions on the competition. This involvement crated yet another OCI, which should have disqualified KBR from even bidding on the work.

In August 2003, a version of the final work plan, approved by Brig. Gen. Robert Crear of the Corps, was placed on the Corps’ web site with no explanation for potential bidders. The potential bidders were confused because the document still indicated that the work would be split between KBR and the Ministry. They had no idea on what they were bidding. On October 29, 2003, the Corps claimed to have found new work and revised estimates of proposed contracts to $1.2 billion in the south and $800 million in the north of the country.

The Corps did several other things to favor KBR. The solicitation required bidders to price out several sample tasks. One of these was putting out oil well fires. There had been about nine of these in Iraq and KBR had extinguished all of them. Since the US Army was protecting the oil fields, there was little likelihood of any others. KBR knew the price of putting out such fires, so their price would be the benchmark against which their competitors would be judged. Once again, the other contractors were working in the dark about this “competition” and KBR held the advantage.

Finally, in January 2004, contracts are awarded to KBR for work in southern Iraq ($1.2 billion) and to Parsons-Worley for work in the north ($800 million.) The great majority of the work was already committed to KBR’s original sole-source RIO contract. By the time of the delayed award, most major contractors, such as Bechtel and Fluor, had withdrawn, claiming that the competition was a sham. They understood how KBR had played a part in writing the final work plan, which was the scope of work on which they had to bid. Instead of excluding KBR for this OCI, the Corps had given KBR a massive advantage.

Once again, the Army and the Corps showed improper favoritism for KBR, despite the constant efforts of Ms. Greenhouse to follow the law. Basic contracting rules were violated and KBR followed their sole-source award with a sham competition that gave them additional work and more money. The competition was also delayed so that more work could be placed under the sole-source contract. Despite Ms. Greenhouse’s formal position, the military leaders at the Corps, Lieutenant General Flowers and Brigadier General Crear were firmly in charge of this process.

Even with a change in Command in July 2004, when Lieutenant General Flowers was replaced by Lt. Gen. Carl Strock, the attack on Ms. Greenhouse and her attempts to enforce the rules continued. She endured various classic bureaucratic tactics to put down whistleblowers or any “troublemakers” who try to do the right thing and follow the law. For the first time in her long career, she was given a poor performance rating. She was isolated in a cubicle and kept out of the loop. The generals would go to her assistant to get waivers from the rules without her knowledge. They did everything that they could to show that, because she did not go along with the bureaucratic culture and insisted on following the law, that she was not a “team player.” Other personnel in the Corps stayed away from her to protect their own careers. She asked to be transferred or allowed to work from home (as others did in the office), but was refused. They also took her top secret clearance away and that automatically limited her access to necessary information.

Then, one day, someone threaded an extension cord low on the floor across the entrance of her cubicle. When she arrived in the morning, she tripped and fell over the nearly invisible cord and did serious and permanent damage to her knee. She knew that the retaliation would not stop there. She had reported all the fraud and retaliation to the DoD inspector general, but they did a cursory investigation without even interviewing her. The Army had turned their back on her.

They wanted to make an example of her even though she should have been the final authority on the contracting. When she went through proper channels to complain, the harassment intensified. She knew her career was probably over, but would not yield to the pressure and break the law. Ms. Greenhouse finally sued the Army, and after many years of litigation, she settled for almost a million dollars in damages in 2011. She may have won her case, but she also knew that KBR got away with making millions of dollars that they did not deserve through influence peddling with a willing and compliant Army.

In a recent interview, Ms. Greenhouse said that she would do it all over again because she wanted her grandchildren in the future to read that she did the right thing for the right reasons. She says that she knows that she can look at herself in the mirror every morning and know that she tried to do her job. Like Smith, she was forced into retirement before she wanted. Both of these public servants just wanted to do the best for the country, but were steamrolled by KBR and their protectors in the Army and DoD.

Her attorney, Michael Kohn, was frustrated and dismayed at the Army, especially the generals as they continued to harass his client in favor of KBR. He said, “it is time that the system stop chewing up whistleblowers while others get rewarded for their wrongdoing.”

So, what has happened to the Army personnel that went along with KBR against the rule and regulation of the government? In various ways, many of them were rewarded with either lucrative post-government jobs or were promoted up the ladder in the DoD to continue their self-dealing at an even higher level in the DoD. We will outline where many of the people who acquiesced to KBR on the LOGCAP and RIO contracts are now next week in Part III of this series, and will try to recommend what we need to do to make sure that this type of blatant self-dealing will not go on again in the heat of war.

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