An alarming story of greed, negligence, and a lack of government oversight
Starring the DBA Insurance company that most ruthlessly denies the medical care and benefits to Injured Contractors and the Widows and families of those who are killed.
July 28, 2011
So this $58.5 million was overcharged in a very small portion of the DBA business that CNA carries.
Basically CNA overcharged, didn’t reimburse USACE and contractors for labor charges that turned out not to be justified, did not have proper paperwork in place and accounting procedures to allow DCAA to be able to look at their books and determine who was owed what.
CNA also commingled funds meant to be segregated for different contracts, lumping them all into one account.
The workers’ compensation program is so riddled with problems as a result of using a third-party insurer that the inspector general’s office suggests it may be worthwhile to dump the insurer altogether, the audit reads.
More to come
How two American kids became big-time weapons traders — until the Pentagon turned on them
The e-mail confirmed it: everything was finally back on schedule after weeks of maddening, inexplicable delay. A 747 cargo plane had just lifted off from an airport in Hungary and was banking over the Black Sea toward Kyrgyzstan, some 3,000 miles to the east. After stopping to refuel there, the flight would carry on to Kabul, the capital of Afghanistan. Aboard the plane were 80 pallets loaded with nearly 5 million rounds of ammunition for AK-47s, the Soviet-era assault rifle favored by the Afghan National Army.
Reading the e-mail back in Miami Beach, David Packouz breathed a sigh of relief. The shipment was part of a $300 million contract that Packouz and his partner, Efraim Diveroli, had won from the Pentagon to arm America’s allies in Afghanistan. It was May 2007, and the war was going badly. After six years of fighting, Al Qaeda remained a menace, the Taliban were resurgent, and NATO casualties were rising sharply. For the Bush administration, the ammunition was part of a desperate, last-ditch push to turn the war around before the U.S. presidential election the following year. To Packouz and Diveroli, the shipment was part of a major arms deal that promised to make them seriously rich.
This article appears in the March 31, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive March 18.
Reassured by the e-mail, Packouz got into his brand-new blue Audi A4 and headed home for the evening, windows open, the stereo blasting. At 25, he wasn’t exactly used to the pressures of being an international arms dealer. Only months earlier, he had been making his living as a massage therapist; his studies at the Educating Hands School of Massage had not included classes in military contracting or geopolitical brinkmanship. But Packouz hadn’t been able to resist the temptation when Diveroli, his 21-year-old friend from high school, had offered to cut him in on his burgeoning arms business. Working with nothing but an Internet connection, a couple of cellphones and a steady supply of weed, the two friends — one with a few college credits, the other a high school dropout — had beaten out Fortune 500 giants like General Dynamics to score the huge arms contract. With a single deal, two stoners from Miami Beach had turned themselves into the least likely merchants of death in history.
The U.S. Army is getting rid of its “pen and paper” and “string and stick” method of tracking fuel use in Afghanistan after nearly a decade of mismanagement, theft and fraud resulting in what is likely hundreds of millions if not billions of dollars in lost fuel, some of which is sold on the black market and has ended up in Taliban hands.
The highest levels of the U.S. military have deep concerns about the rampant robbery, and the U.S. Army this week is beginning to implement, base by base in Afghanistan, a computerized accounting system aimed at making it easier to track the disappearing fuel.
“This has very senior leader attention,” Col. Phil Vonholtz, the commander of the Army Petroleum Center told TPM in a telephone interview. “I have personally briefed [Army Secretary John McHugh]. It has the attention at the highest levels…”
When asked why it has taken the military so long to implement basic safeguards in Afghanistan and Iraq, Vonholtz said he had only worked at the Center since July of 2009 and didn’t know what had caused the delays.
Last week, a TPM investigation reported that the Defense Department is under intense pressure to find a way to staunch the fuel losses in and out of its bases in Afghanistan and Iraq, especially considering the rising costs of oil in the wake of Middle East unrest and Congress’ intensified efforts to cut government waste, fraud and abuse anywhere they can find it.
WASHINGTON — The chairmen of the bipartisan Commission on Wartime Contracting decried on Monday a federal system that has allowed contractors in Iraq and Afghanistan to commit fraud — then get hired again and again.
“For the 200,000 people employed by contractors to provide support and capability in Iraq and Afghanistan, accountability is too often absent, diluted, delayed, or avoided,” Republican co-chair Chris Shays, formerly a longtime congressman from Connecticut, said while calling to order a hearing of the commission Monday.
There are so many barriers to suspending or banning contractors with violations that “untrustworthy contractors can continue profiting from government work, responsible businesses may be denied opportunities, and costs to taxpayers can climb,” Shays said in a statement co-authored with his Democratic co-chair, Michael Thibault, formerly the deputy director of the Defense Contract Audit Agency.
The commission last week issued a blistering interim report to Congress: “At What Risk? Correcting over-reliance on contractors in contingency operations,” which concluded that “misspent dollars run into the tens of billions” out of the nearly $200 billion spent on contracts and grants since 2002 to support military, reconstruction and other U.S. operations in Iraq and Afghanistan.
And that could well be an understatement, the commission noted, because “it might not take full account of ill-conceived projects, poor planning and oversight by the U.S. government, and criminal behavior and blatant corruption by both government and contractor employees.”
Charles M. Smith for Truthout Wednesday February 23, 2011
In testimony before the House on March 11, 2010, Undersecretary of Defense for Acquisition, Technology and Logistics, Dr. Ashton B. Carter, stated, “All studies show that that [organic support, i.e. using troops] is more expensive than contractors and a distraction from military functions for military people.”(1)
While this is sometimes an accurate statement, the Army should not just automatically choose contractor support over organic support without serious and honest additional analysis. With the continuing experience of extensive LOGCAP logistics support for Afghan and Iraq wars, the Army has the opportunity to re-evaluate decisions to use contractors for combat service support. The main support contractor for most of the time of these current wars, KBR, has had many failed reviews and received much criticism by DoD investigators and Congress. With the price tag of KBR’s LOGCAP contracts hitting above $40 billion, there are many lessons to be learned from their cost and performance failures. Such a review can evaluate the additional risks posed by contractors on the battlefield, along with any cost savings.
The major cost comparison study of troop versus KBR LOGCAP support was performed by the Congressional Budget Office (CBO) in 2005. This study was performed during the first two years of combat in Iraq and had significant data. The CBO compared Task Order 59 on the LOGCAP III contract, which provided support to Joint Task Force Seven (CJTF-7), the initial designation of troop units in Iraq. Task Order 59 accounted for over 50 percent of LOGCAP costs during the two years it was in effect.
The CBO estimated the number of Army units necessary to carry out the full range of tasks which Task Order 59 provided for JTF-7. They determined that “177 units of 38 distinct types, populated by 12,067 soldiers” would be required. They took into account units already in the military force structure, but unavailable because they are assigned to other missions, such as Korea. For their model, CBO assumed a 20-year period with two contingency operations and two periods of peacetime, in which units were trained and reconstituted. They calculated the cost per soldier, with the average length of service and the accumulation of veterans and retirement benefits. Unlike previous studies, the CBO factored in the different costs of reserve and regular Army units.
Based on these calculations, the cost of troop support would be $78.4 billion for the 20-year period. LOGCAP support is calculated to cost $41.4 billion for this period. Based upon the CBO calculations, the cost difference over a 20-year period would be $37 billion dollars, in 2005 dollars. The study found that organic support costs approximately 90 percent more than using contractors.
The CBO study examined a variety of operational scenarios, differing lengths for missions and peacetime, and found that the cost differential was not sensitive to these variations. The study is, however, extremely sensitive to a major assumption of the analysis, the Army’s rotation schedule. The Army policy is for a three-year rotational schedule. One year is spent performing a mission, followed by a year of reconstitution and a year of training for the next mission. Given this schedule, each unit created to replace the LOGCAP contract must have two other similar units to complete the rotation cycle. If the Army could live with a two-year rotational schedule for support units, the cost differential between organic support and LOGCAP would be significantly reduced especially since, in reality, the Army has not strictly kept to a three-year schedule and many of our troops are on their fifth or sixth deployment to Iraq or Afghanistan.
Today’s Solution column is written by Charles Smith, a little known, retired, Army civilian employee hero, who went up against the Iraq contractor KBR on behalf of the troops and the taxpayers and was demoted. Smith was chief of the Field Support Contracting Division of the Army Field Support Command in Rock Island Arsenal, and one of his main jobs was to oversee the enormous Army contract with KBR during the Iraq and Afghanistan wars. In 2004, he became concerned when the auditors of the Defense Contract Audit Agency (DCAA) told him that KBR could not justify more than a billion dollars in spending because of their chaotic documentation. He backed the auditors and would not sign off on payments and bonuses to KBR until they provided documented proof of their costs. He also backed DCAA and told KBR that he would legally be withholding 15 percent of all payments to KBR until their auditing systems caught up to their spending.
KBR, with their enormous influence and ability to stop their work on the Iraq and Afghanistan bases, pushed back. Smith was replaced and shuttled off to look at future contracts, while his replacement approved and paid KBR the money without major changes in the billings. That contract, known as LOGCAP III, has now provided KBR with over $40 billion for slinging hash, doing laundry, driving trucks and building barracks in Iraq and Afghanistan. For the full picture of what can happen when a contractor “owns” the service they are working for, i.e. the US Army, see a New York Times profile outlining how Smith, with all his experience, could not get away with doing the right thing for the troops and taxpayers.
The DCAA, even with all the auditing problems and undue influence in DoD contracting, is being used to audit more and more of the rest of the federal government. This is a dangerous trend and could cause the bad contracting habits to infect the rest of the government agencies. DoD has not been able to pass a fiscal audit since 1999, when required by law, and the fraud, waste and abuse of their contractors is legendary, with overruns and lost money. As I mentioned in last week’s column introducing our Solutions series on DoD problems, the DoD is considered “unauditable” on many levels, with contracts and with fiscal audits. As one of my Defense Financial and Accounting Service (DFAS) sources has told me over the years, the DoD may never be able to get its financial and contracting house in order because they don’t know where their money is going at the base level, so it is “garbage in, garbage out.” And, now, the rest of the government may also go down that road by using the DCAA for their auditing, or even worse, hire private contractor auditors, as the Army did to justify pouring money on KBR.
The Need for a Federal Contract Audit Agency
Charles M. Smith
Last fiscal year, the United States Government awarded over $535 billion in contracts with private corporations, nonprofits and other entities. A significant percentage of these contracts are awarded not as safer fixed-price contracts or they were awarded without adequate price competition, meaning auditing is the only realistic defense American taxpayers have against contractor overbilling. There is only one agency with the authority and the ability to audit contractor proposals, assist negotiations and audit incurred costs under massive, fraud-prone and complicated cost-type contracts. That agency, despite conducting work across most of the federal government, is located within the Defense Department, underneath several layers of senior officials. The DCAA conducted 76 percent of contracts audits outside of the DoD, according to a recently published Senate fact sheet. But despite the existence of the DCAA as a de facto government-wide contract audit agency, the US government still does not have the complete capability to use audits to help manage and provide oversight on the hundreds of billions of taxpayer dollars that go out the door to contractors every year. Also, the DoD has the worst history of all agencies in knowing where its money is, having flunked many contract audits and having never passed an overall fiscal audit, as required by law. If this trend is allowed to continue, the DoD’s tolerance for disastrous contracting habits could infect the rest of the government
On February 1, Sen. Claire McCaskill (D-Missouri) chaired a hearing where she explored this issue in her Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight. She noted that the DoD utilized contract auditing far more than the rest of the federal government – while the DCAA conducts one audit for every $24.7 million, the rest of the US government conducted one audit per every $511 million spent. (Ironically, the DoD contracting officers can ignore the DCAA audit results and billions of dollars are not recovered.)
The reason why the DoD had approximately 15,000 contract audits conducted in 2009, and the rest of our government had 1,800 audits conducted in the same period, is due to DCAA’s DoD-centric orientation, the way it is funded and its lack of visibility to the rest of the federal government. A proposed Federal Contract Audit Agency would remedy all of these problems, and bring numerous other benefits, such as greater independence and less pressure from undue agency influences. Please read the entire report by Charles Smith here
The Defense Department conducted nearly 90 percent of all federal contract audits in fiscal 2009, and there appears to be little support for creating an audit unit to support civilian agencies, witnesses told a congressional panel on Wednesday.
The Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight requested information from 22 agencies about the number and type of contract audits conducted in fiscal 2009. The analysis also examined whether agency officials, contractors, or the Defense Contract Audit Agency performed the reviews.
The subcommittee found Defense conducted more than 15,000 contract audits that year, averaging one audit for every $24.7 million in procurement spending. The Pentagon, which accounted for 70 percent of total governmentwide contract spending in 2009, used DCAA for its audits.
Civilian agencies, meanwhile, conducted fewer than 1,900 audits in fiscal 2009, for an average of one audit per $511.4 million spent on contracts. Among the federal agencies conducting the fewest audits as a percentage of their total contract spending were the General Services Administration, and the Justice and State departments.
DCAA performed 76 percent of civilian contract audits. The remaining 24 percent of civilian federal contract audits were performed either by the agency’s inspector general, or by contractors.
The defense industry is facing a changed — and some say more tense — relationship with the Defense Contract Audit Agency since the organization, under criticism from the Government Accountability Office, took steps to be more independent.
“While DCAA got criticized for being too lax, now they’ve gone to the other extreme,” said James J. Gallagher, a partner at McKenna Long & Aldridge.
The DCAA conducts audits meant to ensure the government gets a reasonable price for contracted services and supplies and that contractors are using the right methods, including accepted accounting and billing systems, to charge the government.
In fall 2009, the GAO released a report blasting the DCAA’s independence as compromised and concluding that the agency was failing to protect the public interest.
“They were trying to accommodate their customer, which is the DOD contracting community,” said Asif Khan, the GAO’s director for financial management and assurance, who noted that the agency of about 3,600 people was producing about 40,000 annual audits. “When they got pushback from the contractor . . . they let those findings drop.” Please read the entire article here
Military auditors failed to complete an audit of the business systems of an Ohio-based contractor even though it had billed for $1 billion worth of work over the last four years, largely done in Afghanistan. Immediately after this fact came to light at a public hearing of the bi-partisan Commission on Wartime Contracting, the Defense Contract Audit Agency (DCAA) scrambled to dispatch an extra ten staff to catch up on the job.
Mission Essential Personnel (MEP), which Corpwatch profiled here, supplies 6,000 translators to the U.S. military, mostly in Afghanistan. The company’s costs have not been singled out as questionable or unsupported, but the failure of the government agency to oversee taxpayer money is an indicator of widespread problems and staff shortages at this key military agency.
“How does the government know we’re getting our money’s worth?” asked Christopher Shays, co-chair of the commission and a former member of Congress from Connecticut, at the July 26 hearing.
“This was a major miss on DCAA’s part,” Michael Thibault, the other co-chair and a former deputy director of DCAA, told CorpWatch.
DCAA has oversight over half a trillion dollars of taxpayer money every year. It is supposed to constitute the “first line of defense” against corruption when the Pentagon contracts anything from bunker-buster-bombs from Lockheed Martin, to rockets from Boeing, or when it subcontracts military support operations as it did when it paid Halliburton subsidiary, KBR, to hire Sri Lankans to clean toilets in Iraq.
Despite past success – including exposing Halliburton’s inability to account for billions of dollars early in the occupation of Iraq – DCAA management has drawn fire in the last two years for giving military contractors a clean bill of health and ignoring serious problems in corporate financial systems spotted by lower ranked staff.
Whistleblowers have charged that instead of actively pursuing waste, fraud, and abuse, the top ranks of DCAA were obsessed with signing off on as many audits as possible in the shortest period of time. DCAA management has also been accused of harassing and intimidating staff who have spoken out. The DCAA estimates that the savings it has made for the taxpayer plummeted from $51 for each dollar spent on staff and overhead in 1984 to just $5 today.
Muzzling A Pentagon Watchdog
The first shot across DCAA’s bow was fired by the Government Accountability Office (GAO), the investigative arm of the U.S. Congress. In a July 2008 report that provoked alarm among politicians, the GAO gave DCAA a failing grade for not complying with government standards on 14 major audits.
“This auditing agency has been exposed as being fundamentally corrupt in the way they issue audits,” Democratic Senator Claire McCaskill, a former Missouri state auditor, told her fellow senators in Congress at the time.
The agency’s lapses also sparked internal criticism and multiple internal upheavals as angry staffers battled management – notably in a public forum via the website of Government Executive magazine.
Then in September 2009 both the GOA and the Pentagon’s inspector general issued critical reports, and the Pentagon, after conducting confidential interviews with 68 DCAA staff, confirmed some allegations of staff harassment.
Founded in 1965 to provide the U.S. Air Force, Army, Navy, and Ordnance Department with uniform oversight of contractors was first headquartered in the now closed Alexandria, Virginia Cameron Station, a cold windowless building fitted with rows of steel gray desks.
Even in the days before computers and modern accounting techniques, its auditors were able to catch corrupt contractors and save millions. To do their jobs, the staff sometimes had to battle their own and Pentagon management who were reluctant to criticize the big contractors.
DCAA expanded quickly. By 1966, it had 3,662 staffers around the country with oversight over $21.5 billion. As the Vietnam War ramped up, the DCAA’s “Flying Squad” would fly Huey helicopters to forward bases in the jungle to check up on work done by contractors.
By the end of the 1980s DCAA had more than 6,000 staff and today, with headquarters in Fort Belvoir, Virginia, it has some 300 offices and sub-offices around the world. The agency’s staff still get on helicopters — now Blackhawks and Chinooks — in Afghanistan, Iraq, and Kuwait to visit forward bases and inspect contractor’s books. Although DCAA primarily serves the U.S. military, it also conducts audits for other agencies including the Department of Energy and the National Aeronautics and Space Administration (NASA).
In the last 45 years, DCAA’s oversight of contract dollars has expanded more than four-fold (adjusted for inflation) to $501 billion in proposed or claimed contractor costs that required 30,352 audits in 2008.
Not surprisingly the agency staff has struggled to keep up with demand, and as far back as the 1980s, it had a six to seven year backlog to complete audits. This lag had a major impact on payments to military contractors, which were typically paid just 85 percent of costs on delivery of services, with the remaining 15 percent paid out several years later — only if the auditors were satisfied. Please read the full article here
Prime contractors in Iraq and Afghanistan are not managing their subcontractors’ performance and fees consistently, the Defense Department’s top auditing official told the Commission on Wartime Contracting on Monday.
A Defense Contract Audit Agency review of prime contractors’ billing and cost records identified several situations in which they failed to award fixed-price subcontracts based on fair and reasonable prices, often leading to unreasonable or unallowable costs.
“Prime contractors must be held accountable for establishing fair and reasonable subcontract prices,” Patrick Fitzgerald, director of DCAA told commission members.
Subcontractors comprise about one-third of the roughly 200,000 contractor employees in Iraq and Afghanistan, according to the commission’s data. But federal regulations limit government officials’ visibility into the activities of in-theater subcontractors.
Federal agencies enter into agreements with the prime contractors and have no direct business relationship, known as privity of contract, with subcontractors. Prime contractors are legally responsible for managing subcontractors, but many lack the internal controls or oversight mechanisms to carry out that role, the panel suggested.
For example, DynCorp International billed the government roughly $6 million for work performed by Kuwaiti-owned subcontractor Al-Shora International General Trading and Contracting Co. The cost-type subcontract terms required Al-Shora to provide cost data to support its invoices. When DCAA requested that Al-Shora open its books to document its costs, the company declined, citing Kuwaiti law. DCAA has since suspended payment for DynCorp’s billed costs from Al-Shora.
“If foreign companies want to be in business with this government, they ought to play by our rules,” said commission member Dov Zakheim.
DCAA plans to recommend that Pentagon officials consider adding a contract clause that would require primes to manage its subcontractors more closely.
“Prime contractors should have systems or processes in place to review subcontractor billing processes to ensure [they] are in accordance with subcontract terms and conditions,” Fitzgerald said.
In addition, the Defense Contract Management Agency has yet to approve the purchasing systems of two of the three prime contractors — DynCorp and Fluor — for the Army’s multibillion-dollar LOGCAP IV logistical-support contract for operations in Iraq and Afghanistan. The government relies on data from prime contractors’ purchasing systems to ensure subcontract costs are reasonable.
Commission members cited ethical, security and logistical concerns with wartime subcontractors, including allegations of exploitation of unskilled foreign laborers, human trafficking and excessive costs from tiering contracts, or adding layers of subcontractors to obscure fees and credentialing.
“Subcontracting is a normal business practice,” said commission co-chairman Christopher Shays. “But what makes sense for an office renovation project in Maryland can create some unique risks when the contractor is hiring subcontractors in a combat zone half a world away.”
The daylong hearing included officials from four federal agencies, four prime contractors and six subcontractors. Each agreed that subcontracting in a wartime environment presents unique security and operational concerns.
“We recognize the risks of contracting in a contingency operation,” said Edward Harrington, deputy assistant secretary of the Army for procurement. “We must ensure that America’s integrity is not harmed by the actions of our contractors and subcontractors.”
Both State Department and U.S. Agency for International Development officials said prime contractors must obtain their contracting officers’ written consent prior to the award of a subcontract.
Prime contractors told the panel that oversight of subcontractors was lacking at the start of the wars in Iraq and Afghanistan, in part, because relatively few foreign-owned firms in the region had any experience working with the U.S. government. They said the environment has improved considerably in recent years, but challenges remain.
For example, the federal government frequently prevents local citizens from working on U.S. bases, where much of the subcontract work is performed, said John Supina, DynCorp’s senior vice president of business administration.
“Vetting of host country employees to ensure that they do not support insurgents, will not divert funds to insurgent causes, or pose a threat to U.S. and allied personnel is very difficult,” he said. Original here
DynCorp seems to be making a proactive effort to support Earth Day by holding a “keep your burn pit clean day” at Camp Leatherneck in Afghanistan. Oh wait it isn’t Earth Day, it’s “unauthorized” work day. From what I can ascertain, one of Dyncorp’s “best and brightest” is running a-muck. Apparently a site manager (former KBR) took a bunch of Dyncorp employees (the word on the street is up to 50) on a little “honey do” project for the Military. “Honey do” aka “drug deal” aka “no paperwork”….in other words unauthorized work. One might say he was just helping out the client (military), just doing the client a favor. On the other hand it’s total fraud to do unauthorized work. I’d like to see what they put on those time sheets. It appears to be the same old thing. “Catch me committing fraud if you can.” (yawn-oh so boring) The DoD doesn’t seem to care to much about this so why should we. It’s just our damn tax dollars at work.
The thing that really disturbs me is the actually “honey do” project itself. Clean up the Camp Leatherneck burn pit. According the media the burn pits have burned everything from body parts, vehicles, unexploded ordinance, chemicals, metals you name it. This sounds more like a major Hazardous Material and Environmental clean-up and not a “Honey do” project. It sounds to me like a project that would require planning, equipment, material and support, Job Safety Analysis (JSA) or Activity Safety Analysis (AHA), protective clothing, gloves, and respirators.
Did any of these safety precautions take place? Apparently not. This site manager just marched them on out there to work. It totally pissed me off that even with all the media coverage about the health concerns and dangers of the burn pits, this idiot totally disregarded the health and safety of their employees in order to score points with the Military.
Now Dyncorp is in a quandary. There is no doubt this particular manager would fire anyone who did the same thing. Is Dyncorp going to fire him for cause for violating just about every damn rule and regulation there is.
Not to mention he screwed Dyncorp out of extra authorized work. Money money money, it’s all about the money!
If Dyncorp is wondering why things are so screwed up in Afghanistan. Just take a good look at this incident, which I’m sure is not an isolated one, and then head on up the management chain.
I hope the DCAA, DCMA, CWC and others are reading this.
Gotta love that “Exclusive Remedy”
The megacontractor’s been making millions from mechanics who put in as little as 43 minutes a month. And as more GIs come home, the waste could get even worse.
By Adam Weinstein -Copy Editor – MotherJones.com
It was just a single contract for a single job on a single base in Iraq. The Department of Defense agreed to pay the megacontractor KBR $5 million a year to repair tactical vehicles, from Humvees to big rigs, at Joint Base Balad, a large airfield and supply center north of Baghdad. Yet according to a new Pentagon report [PDF], what the military got was as many as 144 civilian mechanics, each doing as little as 43 minutes of work a month, with virtually no oversight. The report, issued March 3 by the DOD’s inspector general, found that between late 2008 and mid-2009, KBR performed less than 7 percent of the work it was expected to do, but still got paid in full.
The $4.6 million blown on this particular contract is a relatively small loss considering that in 2009 alone, the government had a blanket deal worth $5 billion with KBR (formerly known as the Halliburton subsidiary Kellogg Brown & Root). Just days before the Pentagon released the Balad report, KBR announced it had won a new $2.3 billion-plus, five-year Iraq contract. But the inspector general’s modest investigation offers new insight into just how little KBR delivers and how toothless the Pentagon is to prevent contractor waste. Moreover, the government’s own auditors predict that as the military draws down its forces in Iraq, KBR will keep most of its workforce intact, enabling it to collect $190 million or more in unnecessary expenses. Much of any “peace dividend” from the war’s gradual end—potentially hundreds of billions of dollars—could wind up in the hands of contractors.
On March 29, the bipartisan Commission on Wartime Contracting—which Congress set up in early 2007 to investigate waste and corruption in the military private sector—will hold a hearing to examine whether contractors are doing their part to prepare for leaving Iraq. Some commissioners are raring for a showdown with KBR over its drawdown plan—or lack thereof. The commission’s co-chair, former Republican congressman Christopher H. Shays, said in a statement: “Considering that KBR was just awarded a task order—now under protest—that could bring them up to $2.3 billion in new [Iraq-related] revenues, it’s very important that we get a clear picture of the quality of planning and oversight during the Iraq drawdown.”
The Balad report is likely to be a hot potato at the hearing. Commissioner Charles Tiefer tells Mother Jones the report is a “dynamite critique” of the firm’s practices. “The numbers translate into an astonishingly large pool of KBR employees standing around idle and having the government be charged,” he says.
What the DOD investigators found in Balad was astounding. Army rules require that its civilian maintenance employees are actively working 85 to 90 percent of the time they are on the clock. Yet KBR’s own records showed that its workers were only engaged in labor an average of 6.6 percent of the time they were on duty. The DOD ran its own numbers, and its findings were even worse. In September 2008, for example, KBR had 144 maintenance employees at Balad, available to work 16,200 hours. Their actual “utilization rate” was a paltry 0.63 percent—which means that each of the 144 KBR employees averaged about 43 minutes of work for the entire month.
How did such a large bunch of thumb-twiddling mechanics go unnoticed? The Pentagon investigators found that the Army had no system in place to police how much work its contractors were actually doing. Plus, the unit in charge of KBR’s operation at Balad reported that the contractor wouldn’t reveal how many mechanics it employed there “because it believed the information was proprietary.” The investigators (who eventually got the KBR data) note that as of last August, the number of KBR mechanics at Balad has since dropped to 75, but they conclude diplomatically that “opportunities for additional reductions of tactical vehicle field maintenance services at [Balad] may exist, which may provide additional cost savings to DOD.” In other words, the Army should consider sending even more contractors home.
Some in the military appear to accept such waste as a matter of course. Col. Gust Pagonis, an assistant chief of staff for the 13th Expeditionary Sustainment Command, which took over command of Balad last August, responded to the DOD inspector general by explaining that “the contracting of maintenance capabilities, though not efficient, was effective in ensuring units did not experience low readiness rates and being able to perform the mission.” Translation: The KBR contractors were essentially being kept around on reserve, just in case. Tiefer doesn’t buy that argument. “That might justify a limited overcapacity, but nothing approaching KBR’s levels,” he says.
As the military draws down its own numbers in Iraq, that “just in case” fleet shows few signs of going home. By this August, all US combat personnel are slated to be out of Iraq, leaving a force of about 50,000 “combat support” troops. Yet if the DOD’s own optimistic estimates are accurate, there will still be 75,000 contractors in Iraq at the end of summer—or 1.5 contractors for every soldier. KBR had 17,095 employees in Iraq as of last September, but when its subcontractors are included, it oversees as many as 58,000 workers. The firm has promised to reduce its staff in Iraq by 5 percent each quarter, but that may not be fast enough. Last November, April G. Stephenson, the then-head of the Defense Contract Audit Agency (DCAA), testified to the contracting commission that KBR could cost the government another $193 million in unnecessary manpower between then and the August 2010 withdrawal date for combat forces. “When the military reduced its troop levels from 160,000 to 130,000—a 19 percent reduction—KBR’s staffing levels remained constant,” she told the commission, adding that KBR had so far refused to share “a detailed, written plan to reduce staffing levels in consonance with the military drawdown.”
She added that the $193 million estimate was “conservative”; if KBR fails to meet its withdrawal goals, the price tag could balloon by hundreds of millions more. “The drawdown in Iraq and these Iraq task orders are going to become a deep pocket for these contractors,” she told the panel. In light of the Balad report, Tiefer cautiously agrees. “If KBR has underutilized rates in many of its operations anywhere near the rates found by the inspector general study…that would support a search for savings on the order of $300 million,” he says.
KBR rejects those assertions. The company has “been working since last year with these organizations in responsibly planning our support to the drawdown of military forces in Iraq,” writes company spokeswoman Heather Browne in an email to Mother Jones.
Federal bean counters are concerned with more than just KBR’s inflated contracts. In fiscal 2009 alone, the DCAA identified $20.4 billion in questionable billing, and another $12.1 billion in unsupported cost estimates, by contractors in Iraq and Afghanistan. Together, that’s more money than any individual handout to the biggest beneficiaries of the financial bailout.
In October, the Pentagon transferred Stephenson to its payroll department. That move came after the Government Accountability Office complained about auditing irregularities on Stephenson’s watch. GAO even alleged that some DCAA reports had been modified to favor contractors—which suggests that the companies’ waste in Iraq and Afghanistan may be even worse than already known. (Stephenson could not be reached for comment.) But even before her demotion, Stephenson’s agency had little leverage with contractors. All the DCAA can do is make recommendations to an alphabet soup of other Pentagon bureaucracies that routinely insist that contracts and regulations prevent them from playing hardball with contractors and their paychecks. At the November hearing, Shays, the co-chair of the contracting commission, chastised a Defense Contract Management Agency representative for failing to withhold any payments to contractors—even after the DCAA had expressed doubts about the amounts the contractors were charging. “It is simply outrageous that DCMA did not respond to DCAA’s findings and have any withholds,” Shays said. “And it was unfortunate that DCAA did not have a way to see that resolved.”
The DOD’s inertia on contractor accountability is so complete that its agencies can’t say with any certainty how many contractors are currently in Iraq and Afghanistan. One April 2009 estimate put the number at 160,000; a separate DOD study a month earlier said it was 240,000. The dysfunction has angered some Iraq War hawks, like Shays and contracting commission member Dov Zakheim—a Bush-era undersecretary of defense who helped manage the war’s initial finances. Zakheim upbraided several Pentagon officials in that November hearing for not keeping contractors accountable. “We’ve been at war for eight years in Afghanistan, long enough for me to actually start forgetting about what it was like at the beginning, when I was there,” he said. “Eight years in Afghanistan, and we haven’t resolved something like this, which I would have thought is absolutely critical.”
But KBR will be in the hot seat at next week’s hearing—and on the heels of the Balad report, that seat’s now likely to be a lot hotter. “We’re hoping to find out at this hearing how much progress KBR has made toward a viable drawdown plan with realistic assumptions,” Tiefer says, adding: “I’m personally hoping to receive suggestions for how to reform monopoly cost-plus contracts like KBR’s.” Company spokeswoman Browne says KBR is ready to state its case, and is in the process of drafting a response to the inspector general’s report.
For now, however, it’s hard to see what the commission or the federal government can do to derail the KBR gravy train. Bases across Iraq remain dependent on the firm’s contractors, and that dependency is only likely to increase as more troops come home. “In essence…we basically said that KBR is too big to fail,” Shays said last May. “So we are still going to fund them.” click HERE for the original at Mother Jones