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Iraqi Oil Infrastructure Contract

"We are serving our troops because of what we know, not who we know"
-- Halliburton television advertisement

In the weeks prior to the start of the Iraq war, the Army expressed concern that Saddam Hussein would explode his oil wells, just as he did during the 1991 Gulf War. In preparation for such a disaster, which ultimately never occurred, the Army awarded Halliburton a no-bid contract for extinguishing Iraqi oil well fires and rebuilding the country's oil infrastructure. The contract, known as "Restore Iraqi Oil" (RIO), was a two-year, cost plus contract worth up to $7 billion. KBR would receive the standard cost-plus fee, i.e. one to seven percent of its costs on the contract.

But the no-bid nature of the contract became such a contentious issue with Congress that it catapulted KBR into the critical limelight and began the process of exposing the company's rampant fraud, abuse and corruption. Congress asserted the RIO contract was awarded without competition because Dick Cheney is the former CEO of KBR's parent, Halliburton. Moreover, a March 17 2003 Wall Street Journal article reported that most of the firms chosen by the government to bid on Iraq reconstruction contracts have extensive ties to the Republican Party. These firms "made political contributions of a combined $2.8 million between 1999 and 2002, more than two-thirds of which went to Republicans," reported the Wall Street Journal. The Bush administration continues to refuse requests from Congress to make the contracts public, citing national security concerns.

Under normal circumstances, the Army Corps of Engineers is required to allow a number of companies to compete for Army contracts. But, as the Army explained, in times of emergency, when national security is involved, the government is allowed to bypass normal procedures and award contracts to a single company, without competition. The Army claimed the contract was awarded without competition because of a "national emergency" created by the pending war with Iraq. So, while President Bush spent months before the war wrangling with United Nations inspectors and calling for international support for an invasion, the Army somehow found it had little time for competitive bidding on the RIO contract.

Halliburton defended the Army's no-bid policy: "We are the only company in the United States that had the kind of systems in place, people in place, contracts in place, to do that kind of thing," Chuck Dominy, Halliburton's vice president for government affairs told CBS News. If KBR was the only company who could handle such work, critics want to know why it had subcontracted the firefighting duties to non-Halliburton companies Boots and Coots International and Wild Well Control Inc.

KBR's competitors disagree that Halliburton was the only company able to handle the workload on short notice. Bob Grace, president of GSM Consulting of Amarillo, Texas, had fought oil well fires all over the world. Grace worked for the Kuwait government after the first Gulf War to develop a firefighting strategy for Kuwait's Bergan Oil Field, which had more than 300 fires. Six months before the 2003 Iraq war started, when it looked like there might be another Gulf war and more oil well fires, Grace and many of his friends in the industry began contacting the Pentagon and their congressmen. He told CBS News, "All we were trying to find out was, who do we present our credentials to." He said, "We just want to be able to go to somebody and say, 'Hey, here's who we are, and here's what we've done, and here's what we do.'" "They basically told us that there wasn't going to be any oil well fires." Grace showed 60 Minutes a letter from the Department of Defense saying: "The department is aware of a broad range of well firefighting capabilities and techniques available. However, we believe it is too early to speculate what might happen in the event that war breaks out in the region."

In January 2004, the Army buckled under public pressure and claimed that it cancelled its no-bid RIO contract with KBR. It later opened RIO for competitive bidding. This time, the Army announced that KBR won the contract to rebuild Iraq's oil infrastructure in the southern part of the country, rather than the entire country as the original contract provided. The northern Iraq contract, worth up to $800 million, was given to a joint venture of California-based Parsons Corp. and the Australian firm Worley Group Ltd. But KBR's original no-bid contract was, in reality, not cancelled by the Army. A whistleblower involved in the January contracting process said Halliburton's KBR subsidiary continues to repair Iraq's oil infrastructure throughout Iraq under the first RIO contract even if the Army claims the company is involved only in the south of the country. In fact, the first contract was not cancelled as claimed by the Army and news reports.

KBR won the follow-on RIO contract in January 2004 despite the fact that it was facing allegations of overcharging the government for meals served to troops in the middle east, overcharging for gasoline imported into Iraq from Kuwait, accepting bribes from subcontractors and fraudulently inflating revenue on its balance sheets.

Sen. Frank Lautenberg (D-NJ) said all contracts with Halliburton should be terminated. "Halliburton´┐Żs record of overcharging, bribery, and accounting fraud recites like a textbook example of corporate irresponsibility," he said. "Yet Halliburton has virtually monopolized contracts in Iraq and has collected over 9 billion dollars through its subsidiaries."

More Information

Sen. Frank Lautenberg comments on Iraq contracts
CBS News: All In The Family
Congressman Waxman's letter to USAID denouncing its concealment of Iraq contracts
Congressman Waxman's letter to GAO requesting investigation of Iraq contracts