David Phinney

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April 18, 2005

Defense Contractors in a Perfect Storm

The spending spree and ongoing contracting nightmares in Iraq, aka, Halliburton, et al, are coming home to roost. After fending off critics for several years, the Pentagon and its stable of contractors are tacitly admitting that just maybe the public is getting a bit upset over billions of dollars going out the door with only a slim excuse for oversight, not only in Iraq, but on weapons programs at home. But, hey, Darlene Druyun got a good job offer didn't she?

Here's the latest from Reuters, preserved for posterity by CorpWatch, on Washington's re-thinking of the streamlined contracting practices adopted over the past decade.

And, of course, my take on the dark side of acquisition reform served up in the belly of the beast a year ago, via Defense News.

Defense News
April 5, 2004

The Dark Side Of Acquisition Reform
Less Oversight Leads to Rising Costs
By David Phinney

Ken Pedeleose’s eyes popped as he plowed through a bill for airplane parts in 1999: $2,522 for a 4½-inch metal sleeve, $744 for a washer, $714 for a rivet, and $5,217 for a 1-inch metal bracket.

The senior industrial engineer, who worked for the Defense Contract Management Agency in Marietta, Ga., in 1999 had wrestled for more than a year with a Lockheed Martin subsidiary over what he considered to be inflated pricing of spare parts for the U.S. Air Force’s C-5 Galaxy transport plane.

“It was a nightmare,” Pedeleose now recalls. “I kept asking for information to justify the pricing, and I would just get stonewalled.”

So Pedeleose took his concerns to the Defense Criminal Investigative Service, which concluded in a November 2001 report that Lockheed’s prices were “based on cost and pricing data that was known to be false and purposely overstated.”

Now, five years after Lockheed submitted its bill for those C-5 parts, the Department of Defense inspector general has weighed in with a recommendation for more vigilance by department auditors, a powerful senator has joined the fight to cut the spare parts prices, and Lockheed and the Air Force still have not settled on a fair, final price for hundreds of spare parts.

A Lockheed executive declined to detail how the prices were set but did say the company and the Pentagon have agreed that further payments for those C-5 parts are still due. The question of how much those payments will be, however, “remains to be negotiated,” said the company official, who asked that his name be withheld and who declined to discuss further the C-5 program.

For Pedeleose and other auditors, this episode reflects the dark side of acquisition reforms put in place by Congress in the past decade.
The reforms are widely credited with making government purchases of goods and services easier, faster and, in many cases, cheaper. They have allowed the Pentagon to buy more commercial, off-the-shelf items instead of expensive custom equipment designed from scratch. And they have given contracting officers more ways to buy products and services, including through the use of pre-existing governmentwide contracts.

But the reforms also have spawned new varieties of contracts that may be too big and complex to effectively manage and oversee — especially because federal contracting and auditing staffs have been cut in half since the end of the Cold War.

This reduction in force, Pedeleose and others say, has made it more difficult for contract auditors to do their jobs while making it increasingly tempting for companies to inflate their prices.

Huge Contracts, Fewer Auditors
Despite these well-documented problems, it is now routine practice for the Pentagon to award multibillion-dollar contracts to provide, for example, soup-to-nuts logistics support for an entire weapon system or a host of support services for U.S. troops deployed in an overseas operation.

Such indefinite-delivery, indefinite-quantity contracts and virtual prime vendor contracts are now stealing headlines in Iraq, where Halliburton is alleged to have overcharged the government for fuel and meals supplied to U.S. troops.

Other prime contractors in Iraq are under similar scrutiny by Pentagon auditors. Titan Corp., Fluor Federal Systems, Perini, Washington Group International and others have failed to produce cost and pricing data to justify billings to the government as required by law.

“There are a lot of reforms that are right, but there is also a lot of sloppy implementation,” said Steven Schooner, a former acquisition official at the Office of Management and Budget who is now co-director of the Government Procurement Law Program at the George Washington University Law School.

For contracting officers like Pedeleose, trying to square contractors’ prices can be a major slog. The real costs incurred by contractors for services, goods, deliveries and warehousing can be obfuscated by impenetrable contractual jargon or claimed by contractors to be proprietary, Pedeleose and other auditors complain.

Understaffed auditing agencies now must pick and choose more selectively where they point their magnifying glasses. The Defense Contract Audit Agency, the Inspector General’s (IG’s)Office and the Justice Department do catch some abuses, but there aren’t enough auditors to do a full and thorough check. Says Rep. Henry Waxman, D-Calif., “There are few mechanisms in place to prevent overcharges from occurring in the first place.”

Once a company secures a large contract, Waxman said, it becomes a monopoly: “The more a contractor bills, the more money the contractor makes.”

Danielle Brian, executive director of the watchdog group Project on Government Oversight, agrees, saying these mammoth indefinite-delivery, indefinite-quantity contracts and other procurement reforms cede too much control to prime contractors, which have little or no incentive to contain costs. They also limit the ability of smaller firms to compete for government business, she said.
“It should come as no surprise that companies are exploiting their government contracts,” she said.

The Case of the C-5 Parts
The parts Pedeleose found to be overpriced in 1999 are still under negotiation: Almost 400 remain in dispute.

For example, Lockheed produced and sold to the Pentagon 219 1-inch metal brackets called clip strut support vapor barriers. Lockheed proposed charging $5,217.91 per bracket. This price was based on the premise that each bracket was produced in single-item lots, with each lot assuming the costs of setting up, tooling, manufacturing, overhead costs, profits and other factors.

The Defense Criminal Investigative Service found later that this was untrue: The brackets were produced in lots of larger quantities, and Lockheed knew this.

But the Defense Contract Management Agency rejected that price and, after careful analysis, said a fair cost was $258.90 per bracket. This price was based on Lockheed’s own data, pricing methods and scales of economy, as well as historical data of previous purchases.

The final price is still in dispute; the Pentagon agreed in September 2000 to pay $1.05 in materials costs for each bracket until negotiations on a final price conclude.

When Pedeleose discovered high price tags attached to those C-5 parts in 1999, it was not the first time. Just a year before — in 1998 — he had wrestled with Lockheed over pricing for the very same parts. That struggle resulted in government savings of $34 million, according to his agency’s estimates.

Nevertheless, at the time of his 1999 discovery, Defense Logistics Agency officials were negotiating a sole-source, virtual-prime-vendor contract with Lockheed to provide management and logistics support for 11,000 C-5 spare parts.

The deal was signed in December 2000.

As the single source and broker for the parts, Lockheed was expected to apply modern commercial logistics technology and processes to anticipate the Air Force’s needs for spare parts and coordinate with scores of subcontractors to make sure they were delivered just in time.

But the three-year contract was canceled by the Defense Logistics Agency (DLA) in summer 2002 after 19 months and a cost of $89 million.
“It doesn’t do any good to go into any of the problems,” said DLA legal counsel Lenny Rogers in Richmond, Va. “We weren’t getting what we anticipated and saw a different route to go.”

Rogers admitted the contract had proved too big and unwieldly for the department to manage. After the cancellation, the logistics agency hired nearly a dozen parts suppliers and kept the overall management chores to itself.

“To price 11,000 items is not the smartest thing,” Rogers said. “But if you can get 100 or 50 items at a time, it’s much easier to handle the pricing negotiation. That’s the evolution we went through.”
A Lockheed official, in a written statement, characterized the company’s performance on the C-5 virtual prime vendor contract as “good.”

The contract “was the first supply chain management approach for an entire military weapon system,” the statement said. “It was a significant task and change in approach for the government. We believe the DLA simply chose another path to support the C-5. We respect our customers’ right to decide how their weapon systems are supported.”

Senator Calls for Investigation
In 2002, Pedeleose compiled and sent to Congress a 90-page report entitled “Criminal Vulnerability and Fraud,” that claims the Defense Contract Management Agency and other defense officials repeatedly ignored his warnings that contractors may have been overcharging the Pentagon on the C-5, the F/A-22 fighter and the C-130J transport programs.

Sen. Charles Grassley, R-Iowa, the chairman of the Senate Finance Committee, persuaded the Defense Department Inspector General’s office to launch a series of investigations into whether Lockheed purposefully used false information to justify excessive prices for the C-5 parts.

That investigation is still ongoing, but already Grassley is taking the defense auditing community to task for failing to get to the bottom of whether Lockheed willfully attempted to overcharge the Pentagon for the C-5 parts, as the Defense Criminal Investigative Service concluded in 2001.

A Feb. 23 report by Inspector General Joe Schmitz did not explore the criminal investigative service’s findings that Lockheed used false pricing data. But Schmitz called on the Defense Contract Management Agency and another auditing agency, the Defense Contract Audit Agency, to “maintain vigilance until the price for the remaining parts is negotiated.”

Grassley was unimpressed. In a Feb. 24 letter to Schmitz, he derided the report as “weak and incomplete” and said the IG’s recommendation for continued vigilance fell short of what was needed.

“That conclusion is truly weak,” Grassley told Schmitz. “Those two entities [the defense contract agencies] have a long-standing reputation for turning a blind eye to contractor rip-offs. They are not known for being vicious junkyard dogs when it comes to protecting the taxpayers’ money.”

After six years of fighting over the prices with Lockheed and pushing his managers to act, Pedeleose said he couldn’t agree more.

“The IG ignored its own [Defense Criminal Investigative Service] investigators that found there was fraud in 2001,” said Pedeleose, who believes he has ruined his career and lost any chance for promotion because of his fight over the C-5 parts. “Fraud is staring them in the face, and nothing is done to stop it. Urging continued vigilance is mush.”

Equally disconcerting is the feeling that other auditors may choose not to fight.

“How many other contracts are treated this way?” Pedeleose asks. “How many other times does this happen?”

Posted by davidphinney at 10:07 PM | Comments (0)

April 17, 2005

The Poster Child for Cost Overruns

They said that treating the C-130 cargo plane as an off-the-shelf item, we're talking on the level of laundry detergent and light bulbs, would keep costs down because the program wouldn't need pesky oversight of Pentagon auditors and contract managers.

The cost nearly doubled in ten years.

Darlene Druyun was in on the plan.

Sen. John McCain, R-Ariz., isn't happy, but the Pentagon now says it will cost more to kill the program then to keep it rolling.

My take from a year ago.

Defense News
April 12, 2004

U.S. C-130’s Costs Soar Despite Reforms

The Pentagon had high hopes it could keep costs low on a new model of the C-130 transport by treating it like any other commercial purchase, but despite their pulbic intentions, the airlifter’s price nearly doubled.

Armed with new authorities provided by the 1994 Federal Acquisition Streamlining Act, Pentagon officials announced in 1995 that the C-130J procurement would be purchased as an off-the-shelf “commercial item” for an acquisition-reform pilot program.

“It has evolved,” wrote contracting officer Kenneth Taylor in the 1995 determination. “It will be available in the commercial marketplace by the time of delivery.”

This meant the Pentagon would exempt the program from military-unique specifications that often drive up prices on weapon systems. Also, the contractor would not have to submit nearly as much data to auditors as usual to justify the program’s prices. Less paperwork and oversight, along with the competitive pressures of the commercial marketplace, officials reasoned, should keep a lid on the plane’s cost.
That reasoning is the whole intent behind commercial-based acquisition, said Steve Kelman, chief architect of many commercial acquisition reforms during the 1990s as procurement policy administrator with the Office of Management and Budget.

“The whole idea is there are many ways for the government to get a good deal without the auditors getting involved,” Kelman said. “Auditors may save money when a semiconductor has to be built to government specs, but a commercial chip can cost a third of the price and you don’t need auditors for that.”

But what may work for computer chips appears to have failed spectacularly with the C-130J.

In 1994, a single C-130H was fetching $37.4 million. The unit cost of the first C-130J models, announced by the Pentagon in 1996, was nearly double: $66.4 million. By 2003 the price had soared to $81 million. This year, the Air Force estimates the unit price of the planes will drop considerably — to about $66.5 million — because it plans to buy them in a large multiyear procurement.

A stretch version of the C-130J that is 15 feet longer sells for almost $100 million a copy. The Air Force ordered 40 of those last March.

Lockheed Martin spokesman Peter Simmons declined to confirm these prices, but said the C-130J represents $1 billion in research and development paid for by the company. That research enabled Lockheed to modernize the aircraft with heads-up digital displays for easier piloting and a more powerful engine for shorter takeoffs, faster climbs and greater speed.

“We don’t disclose our prices because it is sold on a commercial basis,” Simmons said. “The ballpark figure is in the 60s [of millions of dollars].”

In fact, after nine years of being deemed a commercial aircraft, no commercial sales of the plane have been made by Lockheed.
Some critics find little justification for the escalating price of a plane fondly viewed as a military workhorse, and they doubt the benefits from the $1 billion in research and development claimed by Lockheed.

“There’s no way a trash hauler should cost that much,” said Ernest Fitzgerald, management systems deputy for the assistant secretary of the Air Force responsible for financial management and cost savings.
If anything, the C-130J should be cheaper, not more expensive, he said. “I bought a computer in 1986 for about $3,600 that now has the memory of a child’s toy. It should be the same way with an airplane — simpler and cheaper.”

Champions of acquisition reform at the time predicted that “simpler and cheaper” would be found through the commercial practices that were used in the C-130J contract: reductions in costly oversight and price analysis, cuts in program office staff, fewer contract data requirements.

But while Pentagon buyers have never taken a comprehensive look at certified cost and pricing on the plane because of its commercial protections, Dave Bily, a contracting officer with the Defense Contract Management Agency (DCMA) in Marietta, Ga., researched the plane’s cost for military buyers.

What Bily initially found was that costs should be reduced on the C-130J because assembly time would be less than what had been required for previous models — and Lockheed was using off-the-shelf commercial technology.

Then, under an international treaty, Italy hired the DCMA in 1996 to take a long look under the hood of the C-130J as part of its deliberations to buy 18 planes.

Bily was assigned in 1996 to provide independent cost documentation for the Italians and their $1 billion contract. His request for cost and pricing data based on Lockheed’s administrative agreement with the Air Force was denied, but after digging for available records he judged the cost per plane to be around $48 million, a finding that could have weakened Lockheed’s floor for off-the-shelf pricing at the Pentagon.

Bily again performed the task in 1997 for Norway, which was considering buying six stretch C-130s. On both international contracts, Lockheed declined to provide pricing data on why it was seeking as much as $61.2 million, but Bily estimated the price tag at $53.6 million.

DCMA’s commanders chose not to heed Bily’s pricing work, and he claims they later pumped up figures to be closer to Lockheed’s asking price.
DCMA officials declined to be interviewed on the C-130 price estimates.

“I had no problem with Lockheed; they are supposed to make money,” said Bily, who retired last year. “It’s the action the military took to support Lockheed and set a commercial price that we’re now paying for.”

Posted by davidphinney at 10:25 PM | Comments (0)

April 16, 2005

Crumbling Oversight in Defense Contracts

These are the tales that current and former employees of the Defense Contract Management Agency tell with hushed voices: The Pentagon's oversight system is crumbling. Explosive growth in workload, sharp staff cuts, and a less aggressive oversight culture fostered by acquisition reforms promoting cozy partnerships and trusting relationships between the Defense Department and its contractors.

Need I say more? Sounds like hell to me.

A government quality assurance officer in Texas says he repeatedly found defects in aircraft parts being purchased by the Air Force, but his managers refused to address the problem. Instead, they reassigned him to a new job.

In Orlando, Fla., a Defense Department engineer discovered a company double-billed the Navy. The engineer thought the case “smacked of waste, fraud and abuse.” Months later, the engineer was fired.

A Defense Department pricing analyst in Marietta, Ga., struggled for years to bring attention to aircraft parts that were found by investigators to have been fraudulently priced by the contractor. Last year, armed guards escorted him off the contractor’s plant — at his manager’s request.

These are some of the tales that current and former employees of the Defense Contract Management Agency tell with hushed voices. A number of federal auditors interviewed by Federal Times asked not to be identified for this story. Many say the department’s contract oversight system is crumbling because of a burgeoning workload, sharp staff cuts, and a less aggressive oversight culture driven by acquisition reforms that promote more partnership and trust between the Defense Department and its contractors.

“There has been a policy change,” said Joan White, a former DCMA deputy commander who is now a faculty member with the Defense Acquisition University at Fort Belvoir, Va.“Contractors are integral team members. There is a more collaborative arrangement, not an adversarial one.”

Shrinking staffs
Since 1989, the acquisition work force has been cut by more than 50 percent — one of the most dramatic reductions in the entire federal government, which reduced overall employment by 20 percent during the same time. The acquisition cuts far outpaced the 32 percent cut in active military and a 27 percent downsizing of civilians working for the Pentagon.

Some in the field say fewer auditors can’t help but result in more abuses. “If you’re on a highway and there aren’t any police around, what does the public generally do?” asks one DCMA quality assurance specialist in Southern California. “They speed.”

New technology and acquisition reforms have lessened the impact of staff cuts. Commercial, off-the-shelf products and purchase cards have eliminated the need for some oversight. Personnel are no longer needed to rubber-stamp and process orders on buys under $2,500.

Still, DCMA remains an agency stretched to the limit. “The resources that get freed up so far, just sort of go away,” said Sallie Flavin, DCMA’s deputy director.

A military command largely staffed by civilians, DCMA has been especially hard hit from a Cold War high of 25,000 workers to just over 11,000 today. Previously known as the Defense Contract Management Command, the agency was separated from the Defense Logistics Agency in 2000.

The Defense Contract Audit Agency, which works with DCMA workers in identifying overcharges, fraud and other cost irregularities, also has witnessed a staffing cut of 1,500 workers since 1993, to a current level of 4,063. Auditing staff has declined to 3,462.

The workers at these two agencies in particular are the ones who roll up their sleeves and test parts for quality and monitor performance. They sharpen their pencils and analyze proposed prices on bids; keep tabs on cost overruns and billings; and commit contractual fine print to memory so they can make sure requirements and standards are met.

Many say they are committed to their mission because every acquisition dollar that may be frittered away is a dollar unavailable to support the war fighters and domestic needs, but some also see their work increasingly treated as irrelevant.

“A lot of people are more concerned with career development than protecting the soldiers, sailors and airmen,” said one civilian DCMA manager who praises many new acquisition reforms. He blames managers who don’t seem to trust their underlings. “There’s now a culture where the manager is always right. And if problems bubble up from the engineers, contract officer and others with first-hand knowledge, they are frequently disregarded.”

As procurement and contract oversight staffs have been shrinking, Defense’s contracting activity has soared. Prime contract awards have spiked 40 percent between 1998 and 2003. Total obligated contracts have climbed 3 percent in that period. Obligated contract dollars represents money already spent on currently active contracts plus the amount obligated but not yet spent.

Softening oversight
“We’re becoming paper tigers,” said Michael Johnson, a program manager with DCMA in Orlando since 1985. “Frequently instead of doing oversight, we just pass around a lot of paper.”

Now president of the American Federation of Government Employees (AFGE) union local representing DCMA workers in Florida and the Caribbean, Johnson can rattle off tales of DCMA specialists who say they have been thwarted in their work.

Some quality assurance officers say they were reassigned after reporting production flaws, he said. Some say they have encountered violent outbursts from contractors. One former worker recounted getting anonymous death threats over the phone. “Again and again, employees raise an issue, then the contractor raises Cain with higher-ups,” Johnson said. “It gets silenced.”

One former DCMA engineer, William Samble, claims he was fired because of circumstances related to his report on a contractor in Orlando that was overpaid by as much as $50,000 on a $700,000 contract to provide meeting presentations, technical publications, Web site design and similar services to the Navy.

“In my view, this smacks of waste, fraud and abuse,” he wrote in a November 2001 memo to his supervisors.

He also claimed that no deliverables were listed in the contract that could be measured for performance and payment.

Jack Smith, vice president for the Orlando-based contractor, Jardon and Howard Technologies Inc., or JHT, acknowledged the overcharge, but said it was quickly settled at the close of the contract when the firm deducted it from full payment a month later. The Navy continued using its services, he said. The double billing, said company comptroller, Elizabeth Ahern, was caused by “a little billing clerical error.”

Months later, Samble, now 53, was fired — eight months after transferring to DCMA from a job as an engineer at the Naval Aviation Depot in Jacksonville, Fla. “This ruined my life,” he said.

As part of a whistleblower case protesting his dismissal pending before the Merit Systems Protection Board, Samble submitted a sworn affidavit by regional AFGE president Johnson, who now claims to have met with then DCMA deputy commander Joan White, Samble’s supervisor at the time. In that affidavit, Johnson said he and another union official repeatedly asked White to specify examples of Samble’s poor conduct and performance. “Joan White kept referring back to William Samble’s disclosure concerning fraud,” the sworn statement reads. She “would not provide any other examples.”

Contacted by Federal Times, White said she never met with Johnson on the matter. “The statements are all false,” she said after viewing the affidavit. White said she dismissed Samble for performance and conduct issues, but declined to go into details.

White added that clerical errors by a contractor should not be construed as “waste, fraud and abuse.”

Larry Johnson, a DCMA program manager in the Dallas-Fort Worth area and president of the union local with members in Oklahoma, Louisiana and Texas, describes the new climate at DCMA as “catering to the contractor.”

While serving as a quality assurance specialist in 1998, Johnson was assigned to sorting through batches of parts for the revolutionary but troubled V-22 Osprey tilt-rotor aircraft. He repeatedly noted the same defects in the transmission parts for the hybrid plane and helicopter.

DCMA managers ignored his findings and declined to get Bell Helicopter to address his concerns, he said. Instead, he was reassigned to another position in 1998.

“People are forgetting who the real customer is,” said Johnson, who spent seven years in the Air Force and another 14 in the Air Force Reserve. “When I rejected parts, the contractor would run to our management and management would override us.”

Transferred to the position of program analyst — a job that steers him clear of oversight and contact with contractors — Johnson believes he was passed over for promotion because he was too aggressive in his oversight. “We uncover things, and they treat us like criminals,” he claimed. “They just want to get rid of us.”

DCMA deputy William Cecil, with the Bell Helicopter contract management office, acknowledges that Johnson identified some “minor” deficiencies in the parts. “Corrective actions were initiated by management,” he said, adding that Johnson was reassigned during a reorganization in response to changes in acquisition policies and a downsizing of the work force.

At DCMA’s Alexandria, Va., headquarters, deputy director Flavin said she could not address complaints of specific employees and former employees about the agency, but she defended DCMA overall. “In looking at an organization of 11,000 people there is an equal number, if not more people, who have extremely good stories about things they’ve done to save money, to save time and to save the soldier based on the work that they are doing,” she said.

Keith Ernst, director of DCMA East in Boston backed up that thought, saying that the emphasis is to “get the right product, at the right time, at the right price.” He said, “It’s our role to ensure we get fair and reasonable prices. You can gain a lot more with a cooperative, joint effort, but to say partnership is a gross exaggeration.”

Still, Johnson’s complaint is a common one, said Tom Maahs, AFGE council president in Chicago. His union represents 9,000 DCMA employees. Maahs, along with many DCMA employees around the country, said he is reluctant to offer details or names to back up his claim. Employees have heard what happened to others who stepped forward, he said. New personnel laws that empower the Defense Department with flexibility in hiring, reassigning and firing only add to the chilling effect.

“Contract issues will never surface unless they are taken outside the management chain,” Maahs said. “I can just tell you that it’s a fact of life.”

Dina Rasor of El Cerrito, Calif., director of the Military Money Project of the National Whistleblower Center, has worked with Defense workers for more than 20 years and claims employees who speak out about current overcharges and contract mismanagement are “just the tip of the iceberg.” Many more remain silent under pressure from the bureaucracy, she said. “Your career and your life can be ruined.”

Posted by davidphinney at 10:44 PM | Comments (1)

April 15, 2005

A Fog of Allegations about Bribes and Kickbacks at Halliburton

Here's a document that sheds some light on ongoing investigations of Halliburton's business in Iraq: an internal company memo dated May 13, 2004, from Randy Harl, KBR chairman, advises company employees that "one or two of our former employees may have received ‘kick backs' from a selected contractor," and that government investigators had been informed.

The KBR memo further cautions employees to not "discard, shred, delete or dispose" of any documents relating to Altanmia as well as food and logistics contractors Tamimi of Saudi Arabia and La Nouvelle of Kuwait.

Corpwatch
Nov. 11, 2004

Kuwait Documents Allege Halliburton Bribe Scandal
by David Phinney

Tom Crum, Middle East chief for Halliburton's Kellogg, Brown & Root (KBR) subsidiary, demanded that Kuwaiti Hilton staff get his wife a diamond-encrusted Cartier watch in the middle of the night, according allegations reported by internal United States embassy memos.

Meanwhile his senior managers, who have made the seaside villas at the hotel their headquarters for almost two years, were openly soliciting bribes from anyone who wanted to get a share of the multi-billion dollar contracts that the company oversees for the military occupation force in Iraq, the accusations claim.

At the very least, KBR staff are portrayed as arrogant and heavy-handed by the allegations, which largely date from December 2003 and the early months of 2004. At worst, the accusations paint a picture of illegal behavior.

The internal embassy communications also portray Richard Jones, the U.S. ambassador to Kuwait, as anxiously pushing the Texas-based company to buy overpriced fuel from a specific company, Altanmia Commercial Marketing Company. Altanmia officials counter that KBR staff were deliberately undermining their bids.

The collection of documents, including e-mails, memos and reports were released to the media by California Representative Henry Waxman, to top ranking Democrat on the House Committee on Government Reform. They are only a small part of over 400 internal documents delivered to the committee, which wields oversight of U.S. contracts relating to Iraq.

"Get off your f&^%ing ass, put my wife in a car, and go get her a watch," Crum is alleged to have told Camille Geha, the sales manager at the Hilton in Kuwait, in early 2004. Aware that the company was spending up to $1.5 million a month at the hotel, Geha is said to have told an unnamed embassy staffer that he had a jewelry store at the Marina Mall opened in the middle of the night to get a new watch.

Wendy Hall, a spokesperson for Halliburton, says her company views the incident differently. Crum's "wife had a watch, valued at $2,600, stolen from the hotel and the hotel replaced it," she wrote in an email to CorpWatch.

Geha said he has no recollection of any incident involving a watch and that he had no idea of why anyone would make such claims.

"It is absolutely untrue," said Geha, who left his position at the Hilton in December 2003. "The Hilton is an international company with international standards."

"It just doesn't make sense," he added. "KBR was my best customer. They paid on time and we had an excellent relationship."

Allegations and Acknowledgements
Related allegations made by Altanmia officers in the newly released embassy documents also include:

-- KBR officers solicited bribes openly and "that anyone visiting their seaside villas at the Kuwaiti Hilton who offers to provide services will be asked for a bribe."
– A senior level Iraqi employee of KBR was fired in August 2003 for complaining to company managers about corruption.
– KBR managers conspired to sabotage Altanmia's ability to fulfill a contract so that the agreement could be reassigned to another company willing to pay a bribe.
– KBR trucks were being used to "backhaul" stolen crude oil out of Iraq for personal gain.
– The wife of a KBR senior executive received a watch valued at well over $20,000 (8,000 Kuwaiti dinars) in appreciation from a real estate company that was receiving rent at twice the market value from KBR for office space. (This allegation overlaps with the story of Tom Crum’s wife but is significantly different, although it may be one incident reported incorrectly by a second source).

Last week Halliburton filed a declaration with the Securities and Exchange Commission stating that the Pentagon would be investigating employees who worked on the Iraq contracts. "The Inspector General's Office may investigate whether these two employees may have solicited and/or accepted payments from these third-party subcontractors while they were employed by us," the company stated. No names have been disclosed.

Also in an internal company memo dated May 13 obtained by CorpWatch, from Randy Harl, KBR chairman, advises company employees that "one or two of our former employees may have received ‘kick backs' from a selected contractor," and that government investigators had been informed.

The KBR memo further cautions employees to not "discard, shred, delete or dispose" of any documents relating to Altanmia as well as food and logistics contractors Tamimi of Saudi Arabia and La Nouvelle of Kuwait.

Halliburton acknowledged to the Pentagon in December 2003 that two KBR employees had been found to have taken kickbacks in return for awarding a lucrative contract for military support work to a Kuwait company. At the time, KBR returned $6.3 million to the Defense Department following the admission and said the two employees had been fired. No names relating to the matter have been made public.

KBR also apparently discharged employees earlier this year working at Camp Anaconda in Iraq believed to be involved in wrongdoing. In postings on the Web blog called "A Minute Longer - A Soldier's Tale," one former procurement manager, Laszlo Tibold, is accused of awarding a gravel contract at five times the price of a competing offer. Another posting claimed that KBR's contracting department at Camp Anaconda was getting kickbacks.

A March 12 posting then announces:

"Mr. Tibold has since been fired for his contract writings there at Camp Anaconda, along with some of his buddies. However their contracts still remain and we continue to pay against them." The response is credited to the email address of Randy Harl, chairman of KBR.

Harl has not responded to inquiries made about the May 13 memo or the Tibold incident.

One subcontractor who claims that KBR owes his company tens of millions of dollars, told CorpWatch that the number of employees that could be referred for investigation "should be more like 30."

Asked this week about the allegations of kickbacks to KBR managers, Halliburton spokeswoman responded in a November 9 email: "We are doing everything we can to make sure this particular scenario won't happen again. We will not tolerate such behavior. We are terminating any relationship with the subcontractors."

Hall declined to offer details about what contracts have been terminated.

Altanmia Affair
Once again the State department documents shed some light on this matter. On June 29, 2003, following the Iraq invasion, accusations in an internal memo within the U.S. embassy in Kuwait reports KBR managers were attempting to disqualify Altanmia from providing fuel to Iraq because the company's general manager, Waleed Al-Humaidi, refused to pay kickbacks to KBR executives.

"Al-Humaidi caveats this by requesting that we not address ‘kickback' issues with KBR directly," the memo cautions. "He fears being blacklisted by KBR."

The memo further reports that Al-Humaidi believes KBR executives plan to "find a reason" to fault Altanmia for poor performance on an earlier fuel contract, while Altanmia believed it was exceeding KBR's expectations. Any shortcomings were blamed on KBR's failure to obtain tanker trucks and to secure military escorts for the convoys to Baghdad through war torn Iraq.

In fact, the memo says, Altanmia believed that KBR was failing to meet contract requirements, which included having racked up more than $23 million ( 7 million Kuwati dinars) in unpaid bills owed to the Kuwait firm. Another embassy memo summarizes a list of allegations made by Altanmia officers who maintained that it was "common knowledge" that "KBR officers are on the take."

Halliburton has repeatedly claimed that they were pressured into doing business with Altnamia. One December 2003 email from Ambassador Jones appears to back up KBR's claims.

"Please tell KBR to get off their butts and conclude deals with Kuwait NOW!" Jones demanded to an official whose name has been deleted from the documents. "Tell them we want a deal done with Altanmia within 24 hours and don't take any excuses." Jones concludes that if the Coalition Provisional Authority head, Paul Bremer, hears that Halliburton is "dragging its feet," then he "will be livid."

At the same time Mary Robertson, a senior contracting officer at the Army Corps of Engineers, protested that Altanmia's cost estimates were too high. "Since the U.S. government is paying for these services, I will not succumb to the political pressures from the [government of Kuwait] or the U.S. embassy to go against my integrity and pay a higher price for fuel than necessary," she wrote.

KBR managers say that Altanmia refused to meet competitive pricing or open its books to justify its higher prices for fuel, the State Department documents also reveal.
When the Pentagon got the bill from KBR the numbers were indeed high – an average of $2.64 a gallon and as much as $3.06 on occasion.

By comparison, the Defense Department's Energy Support Center (ESC) had been doing a similar job supplying fuel at $1.32 a gallon, and SOMO, the local oil company, was doing the same provision for only $0.96 a gallon. The total bill to the taxpayer for 61 million gallons of fuel from Kuwait and about 179 million gallons from Turkey, between May and late October, was $383 million, over $100 million more than what local providers, or even the ESC, would have charged.

Hall denies that there were any problems. She says "the facts show that KBR delivered fuel to Iraq at the best value, the best price and the best terms and in ways completely consistent with government procurement policies."

"It is important to the company that clients, suppliers and host countries know Halliburton's Code of Business Conduct is expected to be followed in every country in which the company operates," she added.

Lawsuits and Hearings
Meanwhile several other sub-contractors, who worked in Iraq, are pursuing Halliburton in the courts. On October 15, La Nouvelle filed a lawsuit against KBR in the U.S. District Court of Eastern Virginia with demands of $224 million in unpaid bills for services performed in Iraq and Kuwait.

A separate lawsuit, filed October 26, charges that KBR has refused to pay $20.4 million for food services and other work near the city of Tikrit provided in 2003 by the Kuwait Company for Process Plant Construction & Contracting (KCPC) and the Morris Corporation of Australia for several months after the invasion of Iraq. Allegations of demands for a $3 million kickback during the original 2003 contract negotiations from individuals associated with KBR first surfaced after KBR fired KCPC and Morris because the two companies had fallen behind schedule.

"They wanted kickbacks of 3 percent to 4 percent, which pushed up the prices because then the subcontractors would add the price of the kickbacks to their costs," an unnamed source told the Sydney Morning Herald, which first reported the story.

Halliburton declined comment on the report at the time.

Upon release of the new embassy documents, Waxman requested that Congress soon schedule more hearing of the company, which holds more then $10 billion in contracts for work in Iraq to supply U.S. troops and assist in rebuilding the war torn country's oil industry.

"The implications of these new disclosures should be thoroughly investigated," Waxman said in a November 10 letter to Tom Davis, a Republican Congressman from Virginia, who is chairman of the House Government Reform Committee.

The documents appear to undermine months of claims by the Bush administration that the Halliburton contracts "were awarded without political interference and without knowledge of allegations of corruption," Waxman said.

Hall said that the California congressman is simply flogging old allegations that have already been thoroughly addressed.

"This appears to be nothing more than a retrospective look at all of the Congressman's letters and news releases during the presidential campaign," she said. "We continue to deliver our mission with great pride. No other company in the world could have acted with such resolve and dedication to accomplish so much in such a short order."

Contact the author, David Phinney, at phinneydavid@yahoo.com.

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