KBR GETS TWOFER: CONTRACT, LAWSUIT

By William Fisher

Only hours after the Justice Department said it plans to pursue a lawsuit accusing KBR Inc. of taking kickbacks from two subcontractors on Iraq-related work, the Army announced it would award a $568 million no-bid contract to the former Halliburton Corporation subsidiary.

The company, which won the award over objections from members of Congress who have pushed the Pentagon to seek bids for further logistics contracts, will provide military support services in Iraq through 2011.

Several hours earlier, the Justice Department (DOJ) said the government will join a suit filed by whistleblowers alleging that two freight-forwarding firms gave KBR transportation department employees kickbacks in the form of meals, drinks, sports tickets and golf outings.

“Defense contractors cannot take advantage of the ongoing war effort by accepting unlawful kickbacks,” Assistant Attorney General Tony West said in a statement.

KBR, the Army’s largest contractor in Iraq, will continue to provide services in Iraq such as housing, meals, laundry, showers, water purification and bathroom cleaning under the new order, which was placed under a military contract KBR won in late 2001, shortly after the U.S. invaded Afghanistan.

Since April 2008, the Army has put all logistics orders out for bids, pitting KBR against other companies, including the Falls Church, Virginia-based DynCorp International Inc. and Irving, Texas-based Fluor Corp.

Thus the no-bid work order is considered to be unusual. The Army said it chose the no-bid route for this contract because U.S. commanders in Iraq felt that bringing in a new company would be too disruptive as the U.S withdraws.

The view of General Ray Odierno, the U.S. military commander in Iraq, was crucial to the decision, Army Chief of Staff General George Casey told reporters.

“Odierno has reportedly said, ‘I’ve got three million pieces of equipment I’ve got to get out of Iraq, I’ve got 100 or so bases to close, I’ve got to move 80,000-plus people out of here and you want me to change horses in the middle of the stream?”

The U.S. force in Iraq is scheduled to shrink from 94,000 troops now to 50,000 by August, with a complete withdrawal by December 2011.

The Army, in its statement yesterday, said putting out to bid an order for 18 months’ work and making the transition to a new contractor would cost at least $77 million.

But members of Congress expressed dismay at the award. Congressman Edolphus Towns, a New York Democrat who heads the House Oversight Committee, wrote to Defense Secretary Robert Gates to question the Army's decision. North Dakota Democratic Senator Byron Dorgan, who chaired several Senate hearings on electrocutions of soldiers in Iraq resulting from shoddy contracting work by KBR, said the Army's past LOGCAP, or logistics, contracts had produced "the greatest waste, fraud and abuse perhaps in the history of our country."

KBR’s no-bid work order also drew criticism from two U.S. senators even before it was announced. Senator Claire McCaskill, the Missouri Democrat who heads a subcommittee that oversees military contracting, and the panel’s ranking Republican, Susan Collins of Maine, wrote Defense Secretary Robert Gates urging the Army against “continued reliance” on KBR in light of the Justice Department’s April lawsuit.

“The Army has a big burden to demonstrate that a decision to not compete is in the best interest of the military and American taxpayers,” McCaskill said.

The whistleblowers’ lawsuit against KBR is the second government action this year. The U.S. sued the company on April 1, alleging that it used private armed security guards in Iraq between 2003 and 2006 in violation of its Army contract and then improperly billed for their services.

Before yesterday’s DOJ announcement, the Army had said in an e-mailed statement that it was aware of the April lawsuit and would use “additional oversight measures to ensure only reasonable, allowable costs are paid” under the new work order.

The new lawsuit, filed in a Texas federal court, was based on information from two whistleblowers who work in the air cargo industry, the DOJ said. The whistleblowers are entitled to a part of any money the Justice Department obtains in the case.

The new no-bid award also comes just a week after the Army announced that KBR would not receive $25 million in bonuses under the LOGCAP III Iraq support contract because KBR "failed to meet a level deserving of an award fee payment for work it did during the first four months of 2008.”

KBR's "failed" work occurred during the time a Green Beret soldier was electrocuted in a barracks shower in Iraq that KBR was responsible for maintaining.

The whistleblowers’ lawsuit is not the first legal action taken against KBR. On April 1, the DOJ sued KBR alleging it violated its contract by using private security guards and improperly charging the Army for their services.

More recently, Charles M. Smith, a civilian official formerly in charge of managing KBR's multibillion-dollar contract in Iraq, blew the whistle on the Army approving $1 billion in dubious charges to the company. Smith was forced from his job when he refused to sign off on the charges, for which auditors had determined that KBR lacked credible data or records. His successors then approved the charges. Smith said:

"They had a gigantic amount of costs they couldn’t justify. Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”

For KBR, the new contract award is about more than money. It represents an opportunity for the company to repair its iconic image as typifying the worst of wartime profiteering and greed. The company has charged billions of dollars in unsupported charges, carried out shoddy electrical work, built hazardous burn pits, and failed to protect its employees from being raped.

KBR sent an email to its employees that says, "With so much negative news about KBR and the fact that we have not won a LOGCAP IV task order, it is with great pride that I am able to announce that KBR is now in the LOGCAP IV business."

Former Vice President Dick Cheney was the chief executive of Halliburton from 1995 until 2000. Halliburton spun off its KBR subsidiary in 2006.