June 16, 2004

Auditors Testify About Waste in Iraq Contracts


New York Times

WASHINGTON, June 15 - Multibillion-dollar Pentagon contracts to support military operations and reconstruction in Iraq have been plagued by "inadequate planning and inadequate oversight," the government's chief budget investigator told Congress on Tuesday, citing management deficiencies that have fostered waste and cost overruns.

"We have no evidence to say there was willful fraud, based on the work we've done so far," said the official, David M. Walker, the comptroller general and head of the General Accounting Office. "But there have been very serious problems." The agency has not estimated how much federal money has been lost through lavish or unneeded expenditures.

In testimony before the House Government Reform Committee, Mr. Walker and other government auditors offered one of the most sweeping portraits yet of reckless or poorly monitored spending by private contractors, whom the Pentagon has hired on a large scale to support the troops and rebuild Iraq.

Officials focused Tuesday mainly on the largest corporate recipient of Iraq-related contracts, the Halliburton Company, and the company's largest single project, which is to provide meals, housing and other support to the military.

Under an agreement for logistical support, a Halliburton subsidiary, KBR, has so far received $4.5 billion for activities in Iraq and Kuwait. The company, based in Houston, has received more than $3 billion more to import fuel and repair oil fields.

"We saw very little concern for cost considerations," Mr. Walker said of KBR's logistical-support programs in Iraq and Kuwait.

Several examples of waste or overbilling by KBR involving fuel supplies, meals for troops and other services have already come to light. The Pentagon's own auditing office testified at the hearing on Tuesday that it has now withheld payment of $186 million - $10 million more than previously announced - to the company because of evidence that KBR may have billed the Pentagon for 36 percent more meals than it actually provided. The company, citing the chaos of the occupation, says it mistakenly overbilled for troop meals by only 19 percent.

But Mr. Walker said Tuesday that the problems with KBR and other company contracts were rooted in sloppy planning and deficient oversight practices by the Defense Department itself. He said the Pentagon has repeated many of the same costly contracting mistakes it made in past military actions, as in Kosovo and Afghanistan, but this time on a vaster scale.

In particular, Mr. Walker said, the form of contract now widely used by the military, known as cost-based or cost-plus, is subject to wasteful spending unless government agencies carefully define the likely scope of work and its reasonable cost - something that still has not occurred with many major programs in Iraq. Under such contracts, companies are repaid for their actual expenditures, then are paid a proportional fee and possible bonus on top of that.

Because of the American elections this fall and because Vice President Dick Cheney was formerly Halliburton's chief executive, many of the questions raised by lawmakers at Tuesday's hearing had political overtones.

Representative Tom Davis, Republican of Virginia and chairman of the committee, vowed to root out waste but said the government's oversight system appeared now to be working. He noted the urgent and dangerous conditions under which companies have worked in Iraq, especially in early 2003 when many contracts were let on an emergency basis, without competitive bidding.

"I'm not new to politics, and I understand why others feel the need to say the word Halliburton as often as humanly possible," he said.

Mr. Cheney has denied playing any role in sending business to Halliburton, but critics in Congress are pressing to find out how much he knew about Pentagon's plans, on the eve of the Iraq war, to give exclusive contracts to the firm.

Representative Henry A. Waxman, Democrat of California and the committee's minority leader, charged, "Halliburton is gouging the taxpayer." This "one well-connected company," he said, has already been awarded more than $7 billion under the logistical support and oil-field contracts.

On Monday, Mr. Waxman's office released statements by five former employees of KBR who added new tales of what they described as corporate waste. A former director of company truck convoys described making dangerous, expensive journeys with empty vehicles and the abandonment of $85,000 trucks for want of a spare tire. Another truck driver said he was fired after he contacted KBR's president to warn of pervasive theft and waste.

A former field buyer for KBR in Kuwait described a corporate culture in which supervisors told buyers, "Don't worry about price. It's cost-plus."