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Whistleblowers, auditors describe Halliburton's rip-off of US taxpayers
29 June 2005

WASHINGTON, June 29 (HalliburtonWatch.org) -- A Congressional hearing on Monday provided detailed evidence of the cozy relationship between Halliburton and top officials of the Pentagon, revealing how the Army's number one contractor abuses US taxpayer funds in Iraq with impunity.

During the hearing, sponsored by the Democratic Policy Committee, Rep. Henry Waxman (D-CA) released a previously-secret military audit criticizing an extra $1.4 billion in "questioned" and "unsupported" expenditures by Halliburton's KBR subsidiary in Iraq. The audit was conducted by the Pentagon's Defense Contract Audit Agency (DCAA). It determined that KBR had $1 billion in "questioned" expenses in Iraq (i.e. expenses which military auditors consider "unreasonable") and $442 million in "unsupported" expenses (i.e. expenses which military auditors have determined contain no receipt or any explanation on how the expenses were disbursed).

Last August, Pentagon auditors disclosed $1.8 billion in questioned and unsupported costs by KBR. Last February, top officials in the Pentagon ignored their own auditors and paid the $1.8 billion to Halliburton even though KBR was still unable to explain or justify the cost.

Most of the audits of the Pentagon's 77 contractors in Iraq have "found only minor cost" problems, says the DCAA, and "the majority of these problems have been resolved by the contractors." But this is not the case with Halliburton. According to DCAA, "major contract audit issues" are "limited to [the] largest Iraqi reconstruction contractor," which is Halliburton.

Given the cozy relationship between Halliburton and top officials at the Pentagon, it's likely that the amount of suspicious KBR expenditures will continue to increase further into the billions while political appointees at the Pentagon reward the problem by ignoring it or offering bonus payments for KBR's work.

Army Whistleblower Bunnatine H. Greenhouse

In order to understand how the Pentagon's favoritism toward Halliburton works, Monday's testimony by Bunnatine H. Greenhouse is invaluable. She is the senior contracting specialist with the Army Corps of Engineers and the Corp's top civilian employee with 20 years of government contracting experience.

Greenhouse said she was hired by the Army Corps in 1997 to prevent what she called "casual" and "clubby" contracting practices. But when the Bush administration came to power, all of that changed and she realized that the Corps had compromised its independence by ignoring regulations in order to give Iraq contracts to Halliburton/KBR. KBR has currently received 52 percent of the value of all military contracts awarded for Iraq work, according to the DCAA.

"I can unequivocally state that the abuse related to contracts awarded to KBR represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," Greenhouse said.

In one case, Greenhouse criticized the Army Corps for hiring KBR in 2002 to draft "contingency plans" for repairing Iraq's oil infrastructure. The Corps has no experience in repairing oil infrastructure, she said, and oil work is outside the scope of the Corps' congressionally-mandated mission. More importantly, by drafting the contingency plans for Iraq's oil, KBR essentially wrote the Iraqi oil infrastructure contract and decided for itself what costs would be considered "reasonable" by the Army. Normally, when a private company is hired to write a contract for the military, the company is forbidden from bidding on the contract. But, in the cozy world of KBR and the Pentagon, not only did KBR write its own $7 billion Iraqi oil infrastructure contract and determine the definition of "reasonable cost," the Army awarded the contract to KBR without competition.

In several instances, Army auditors found that Halliburton's cost estimates were many times higher than independent government estimates. Yet military officials "were willing to rely on the contractor's [KBR's] cost estimates with little or no question," said one audit report. Consequently, these inflated cost estimates became Halliburton's "spending targets" rather than accurate reflections of required services.

KBR's unprecedented control over contracting is how it received the most lucrative troop logistics contract ever awarded by the Pentagon. In 1992, then defense secretary Dick Cheney paid KBR to conduct a still-classified study to determine if privatizing troop logistics would be beneficial to taxpayers and the troops. After KBR concluded that it would indeed be beneficial, Cheney awarded the first large troop logistics contract in history to KBR. In other words, KBR wrote the Pentagon report that ultimately resulted in awarding contracts to KBR. In exchange, KBR's parent, Halliburton, hired Cheney as its chief executive only three years later in 1995.

Greenhouse also complained when Defense Secretary Donald Rumsfeld's office took control of "every aspect" of KBR's no-bid Iraqi oil infrastructure contract. "In reality, the OSD [Office of Secretary of Defense] ultimately controlled the award of the [oil] contract to KBR," she said. This arrangement was illegal since the law requires career civil servants, not temporary political appointees like the folks in Rumsfeld's office, to determine the winners of government contracts. The purpose of the law is to prevent political appointees from awarding contracts only to their friends in the private sector. Rumsfeld's office violated this rule by involving itself in awarding the $7 billion no-bid Iraqi oil contract to KBR.

Another blatant example of cronyism occurred when military auditors caught KBR overcharging the Pentagon by $61 million for fuel deliveries to Iraq. Greenhouse said the Army Corps "took the unusual step of issuing a waiver absolving KBR of its need ... to provide cost and pricing data." She said the Army "simply asserted that the price charged for the fuel was 'fair and reasonable', thereby relieving KBR of the contract requirement that cost and pricing data be provided." She said Pentagon officials "knowingly violated" the law by "intentionally failing" to obtain her approval as required by standard operating procedures. That's because they knew she would have refused to approve the waiver request. "The evidence suggests that the reasons why I was intentionally kept from seeing the waiver request were politically motivated," she said.

The U.S. Justice Department is currently investigating Greenhouse's allegations. Her superiors threatened to demote her if she testified at Monday's hearing.

Whistleblower Rory Mayberry

Another whistleblower who testified at the hearing is Rory Mayberry, who worked as a food production manager for KBR at Camp Anaconda, Iraq.

When Mayberry complained about food overcharges, KBR managers told him that "this needed to be done" because the company lost money in prior months due to the temporary suspension of payments considered suspicious by Pentagon auditors.

"The KBR managers would triple the order every week to bring in much more food than we needed," Mayberry said. KBR would charge for an extra 5,000 meals for troops who would never be served, meaning the food became refuse.

Mayberry said KBR would pay $13 to $15 for a box of tomatoes flown in from Philadelphia even though a local box of tomatoes cost only $5. Same goes for bacon. KBR would purchase an $80 box of bacon flown in from Philadelphia even though a local box cost only $12.

The reason KBR prefers to incur high costs is because its contracts are "cost-plus," meaning the Pentagon pays the company for all costs plus a fee of 1 to 3 percent of those costs. So, the higher the costs incurred by KBR, the higher its fee from the Pentagon. Another KBR whistleblower said the company's motto is "Don't worry about price, it's cost-plus."

Mayberry also described instances where the troops were fed outdated food or food that had expired over a year ago. Company policy also required purchasing food even if it was spoiled when delivered. When the subcontractor dropped off food at KBR locations, there was often no place to store it, so the food would sit in KBR freezers on the trucks until the fuel ran out. "KBR wouldn't refuel the trucks so the food would spoil," Mayberry said. "This happened quite a bit."

Mayberry also described how KBR managers would hide from military auditors and not answer radios when summoned by them. KBR punished Mayberry for speaking to the auditors by sending him to work in the notoriously violent town of Fallujah, Iraq. "The manager told me I was being sent away until the auditors were gone because I had opened my mouth to the auditors," he said.

Truman Committee

A bi-partisan coalition of senators, led by Senators Dick Durbin (D-IL) and Larry Craig (R-ID), offered a resolution last year to establish a special Senate committee to provide critical oversight of government contracts awarded to support the war on terrorism, including the lucrative contracts awarded to Halliburton. The committee would be modeled after Sen. Harry Truman's "Truman Committee," established during World War II as a means to protect taxpayers from unscrupulous war profiteers and flawed contracting procedures that artificially inflate costs.

So far, the Senate has failed to pass the legislation needed to establish the committee.

According to the nonprofit Taxpayers for Common Sense, the Truman Committee was launched with just $15,000, but may have saved in excess of $15 billion during the wars with Germany and Japan. The Truman Committee is often described as the most successful government investigation effort in U.S. history because of the billions of dollars it saved.

More Information:

Report on Halliburton's Questioned and Unsupported Costs (pdf)

Testimony of Bunnatine Greenhouse, U.S. Army Corps of Engineers (pdf)

Testimony of Rory Mayberry, Former KBR Food Production Manager (pdf)

Rep. Henry Waxman's Opening Statement (pdf)

Army Audit Report (pdf)

Transcript of the hearing (pdf)

Former Army chaplain says KBR places profits before soldiers