Saturday, May 31, 2008

Invitation to Steal: War Profiteering in Iraq

William D. Hartung | Foreign Policy In Focus, May 28, 2008

[Note: This essay was drawn from FPIF's latest book, Lessons from Iraq: Avoiding the Next War, published by Paradigm Publishers.]

The heavy reliance on private contractors to do everything from serving meals and doing laundry to protecting oil pipelines and interrogating prisoners has been a major factor in the immense costs of the Iraq war. By one measure, there may be more employees of private firms and their subcontractors on the ground in Iraq than there are U.S. military personnel.

One of the main rationales for using private companies to carry out functions formerly done by uniformed military personnel – a practice that has been on the rise since then Defense Secretary Dick Cheney commissioned a study that led to the contracting out of all Army logistics work to Halliburton in the 1990s – was that it would save money. But in Iraq, the combination of greedy contractors and lax government oversight has resulted in exorbitant costs, many of them for projects that were never completed.

The first sign that something was terribly wrong with the contracting process for the war was the awarding of a no-bid, cost-plus contract to Halliburton, allegedly to pay the cost of putting out oil fires in Iraq. Rep. Henry Waxman started asking questions about the contract after he learned that it could be worth up to $7 billion over x years. He rightly questioned how a no-bid deal justified on the basis of potential short-term emergencies could have such a long duration at such a high price. Only then was it revealed that the contract also covered the task of operating Iraq’s oil infrastructure. Given the long-term nature of this larger task, Waxman argued that this aspect of the work be taken away from Halliburton and subjected to competitive bidding. It was several years before his recommendation was implemented, and even then Halliburton received what at least one potential competitor – Bechtel –viewed as an unfair advantage.

While few contracts matched the size of Halliburton’s oil deal, the use of cost-plus awards was widely emulated. A cost-plus award is virtually an invitation to pad costs, as profits are a percentage of funds spent – in other words, the more you spend, the more you make. This problem has been compounded by a lack of auditors to scrutinize these contacts. For example, in one zone of Iraq, only eight people were assigned to oversee contracts worth over $2.5 billion.

Halliburton’s other major contract in Iraq is for the Logistics Civil Augmentation Program (LOGCAP). Under this arrangement, Halliburton supplies virtually all of the Army’s non-combat needs in the field, from building and operating bases to repairing and maintaining combat vehicles. LOGCAP operates on a variation of the cost-plus contracts, and it has exploited this arrangement to the fullest. Among the overcharges engaged in by the company have been the following: overcharging by more than a dollar a gallon for fuel shipped into Iraq from Kuwait; billing the government for three times as many meals as it actually served the troops at several of the bases it runs; leasing SUVs for its personnel at a cost of $7,000 per month; and charging $100 each for doing a bag of laundry. These are just a few examples among dozens in which Halliburton took advantage of the “fog of war” to line its pockets. The company’s attitude was summed up by company whistleblower Henry Bunting, who indicated that when he raised questions with his supervisor about Halliburton’s lavish expenditures of government money he was told “don’t worry about it, it’s cost-plus.”

Continued . . .

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