Halliburton, Questions and Fuel for Debate
For four years, the no-bid contract awarded to Halliburton has been a magnet for controversy. The deal allowed the company to become the government's leading contractor in Iraq, and questions were raised over why it received the contract without competition. Then came the questions about money, which mounted as the tab soared into the billions.
Along the way Congress, pundits and bloggers galore focused on the use of the contract, known as Restore Iraqi Oil, or RIO I, to import oil into Iraq. This part of the deal particularly angered Rep. Henry A. Waxman (D-Calif.) and other Democrats. In a July 2004 report, they asserted that Halliburton fees "increased the costs to the government by $167 million, an increase of over 90%."
Now comes an audit from the Government Accountability Office about RIO I and some $221 million in questionable costs -- questions raised by the venerable Defense Contract Audit Agency. Almost 80 percent of the questioned costs related to the import of fuel into Iraq. Here's a DCAA audit of one of the biggest task orders relating to fuel imports.
The GAO report found that the Defense Department Army Corps of Engineeers didn't exactly handle the contract the way that taxpayers want. Among other things, Halliburton had finished the work and "incurred nearly all costs" by the time DoD sat down with the contractor to discuss the matter. The corps paid Halliburton about $57 million in award fees, even though it didn't formally evaluate the contractor until nearly all the work was done, the GAO said. By waiting, the government lost out on a chance to "motivate" the contractor.
The report did little to extinguish the debate. That's in part because it doesn't answer one key question: should the government have paid Halliburton the $221 million costs questioned by the DCAA?
In a story today by my colleague Dana Hedgpeth, Waxman, now chairman of the Government Oversight and Reform Committee, expressed pique and said he would "pursue this matter directly with the Defense Department."
Rep. Tom Davis (R-Va.), who has defended Halliburton's role in Iraq, said the report "puts to rest some of the wild and premature charges that were leveled by some members against the government contract officials and against KBR.
Surely there is more on this to come.
This just in from an anonymous, apparently knowledgeable observer:
Whoa.
Rep. Davis hasn't "defended Halliburton's role in Iraq." Far from it. He's called the balls and strikes for many years now, including a string of hearings while he was chairman, hearings that included whistleblowers who'd formerly worked for the contractor. His hearings were dispassionate, unbiased, and thorough.
And there's a reason the resport doesn't address the "key question" you pose: because BOTH Reps. Waxman and Davis didn't ask GAO to look into that question. How can Chairman Waxman criticize the scope of the study when he himself defined it?
Chairman Waxman is upset with this report because it doesn't jibe with the wild assertions he made in 2006 that DoD "ignored auditor findings." In fact, GAO now reports, DoD did not.
That's why Chairman Waxman attempted to delay public release of this report, as it did not come out the way he had hoped. He also took the unprecedented step of demanding GAO's underlying audit docs IN ADVANCE of the report's public release. Fortunately, his staff did not succeed in delaying release while they attempted to mount an attack against it. Now the public can decide for itself what the report actually says.
As GovExec reported yesterday:
"The Government Accountability Office is set to release a report finding that the Pentagon considered the recommendations of its auditing arm before deciding to pay millions of dollars in questioned costs to KBR, the contractor charged with importing fuel and rebuilding the oil infrastructure of Iraq.
"A copy of the report...appears to counter claims made last year by Rep. Henry Waxman, D-Calif, chairman of the House Oversight and Government Reform Committee, that a settlement of $221 million in disputed contract charges shows that the Defense Department 'ignored auditor findings.'"
In other words, GAO found that DCAA officials, charged with protecting the government's interests ". . . believed the DoD contracting officer followed the standard process for addressing questioned costs . . . the Corps rightly considered other evidence other than the audit reports and considered extenuating circumstances that might have affected the contractor's actions . . . a DCAA official involved in the process told us (GAO) he thought the DoD contracting officer did the best job he could, under the circumstances."
In reaching this conclusion, GAO noted the Corps found KBR did attempt to get competition for the gas and oil that it imported for domestic consumption in Iraq. GAO also found the Corps was able to obtain new information on pricing that was not available to DCAA at the time it issued its reports. Further, the Corps weighed the possibility that if not paid, KBR could prevail in subsequent litigation. According to GAO, DCAA felt all of these factors were appropriately considered by the Corps.
GAO also put to bed the issue of the so-called "sustention rate." Mr. Waxman has expressed disbelief that a majority of the questioned costs were paid by the Corps, while overall about 50 percent of DCAA questioned costs are sustained (ie, not paid by the agency.) But both GAO and DCAA say "sustention rates" regarding individual audit reports are not directly comparable and that, in any event, the "sustention rate" under the RIO task orders fit within the overall pattern for other Iraq contract actions. In this regard, GAO held: "DCAA officials told us that it is not unusual to have a sustention rate of 0 percent or of 100 percent on an individual audit, and these were common in the two groups we looked at."
The bottom line is, there's more than enough going wrong in Iraq; we don't need to make stuff up. No one ignored auditor findings here, as Mr. Waxman charged. All factors were considered, all charges put under a microscope. The rights of taxpayers were protected. The vast majority of costs were found by independent investigators to be reasonable.
Contracting in a war zone is complicated stuff. Mistakes get made. The important thing is whether mistakes are addressed and fixed at the end of the day.
By Robert O'Harrow |
August 10, 2007; 7:32 AM ET
iraq
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Posted by: Kate | August 10, 2007 8:37 AM
Is the DCAA report available to the public? If so, where?
Posted by: Kate | August 10, 2007 8:37 AM
Thanks for another rehash of somebody else's work. It'd be enlightening for a lot of people if you really dug into the fee structure of the contract, the sole source J&A, what they're actually trying to accomplish, etc. Everybody's heard the headlines, but not everybody knows the next layer down.
For example, the headlines always talk about the high dollar figures of fees KBR receives, when in reality their fees are capped at 1% fixed fee and 2% award fee for a maximum profit of 3%. I don't think anybody would consider KBR anything other than a business looking to make money and make shareholders rich, but 3% is a pretty small return considering over 100 of their employees have been killed, more injured, and the negative press that they're getting. I think in the real world, you'd be pretty hard pressed to hire anybody to do almost anything for 3% fee.
BTW - those Contracting Officers who have actually received DCAA/DCMA audit reports konw that every questioned cost is not always a "gotcha."
Lets move past the headlines and dig into the real issues and topics.
Posted by: JoeyR | August 10, 2007 8:52 AM
Whoa.
Rep. Davis hasn't "defended Halliburton's role in Iraq." Far from it. He's called the balls and strikes for many years now, including a string of hearings while he was chairman, hearings that included whistleblowers who'd formerly worked for the contractor. His hearings were dispassionate, unbiased, and thorough.
And there's a reason the resport doesn't address the "key question" you pose: because BOTH Reps. Waxman and Davis didn't ask GAO to look into that question. How can Chairman Waxman criticize the scope of the study when he himself defined it?
Chairman Waxman is upset with this report because it doesn't jibe with the wild assertions he made in 2006 that DoD "ignored auditor findings." In fact, GAO now reports, DoD did not.
That's why Chairman Waxman attempted to delay public release of this report, as it did not come out the way he had hoped. He also took the unprecedented step of demanding GAO's underlying audit docs IN ADVANCE of the report's public release. Fortunately, his staff did not succeed in delaying release while they attempted to mount an attack against it. Now the public can decide for itself what the report actually says.
As GovExec reported yesterday:
"The Government Accountability Office is set to release a report finding that the Pentagon considered the recommendations of its auditing arm before deciding to pay millions of dollars in questioned costs to KBR, the contractor charged with importing fuel and rebuilding the oil infrastructure of Iraq.
"A copy of the report...appears to counter claims made last year by Rep. Henry Waxman, D-Calif, chairman of the House Oversight and Government Reform Committee, that a settlement of $221 million in disputed contract charges shows that the Defense Department 'ignored auditor findings.'"
In other words, GAO found that DCAA officials, charged with protecting the government's interests ". . . believed the DoD contracting officer followed the standard process for addressing questioned costs . . . the Corps rightly considered other evidence other than the audit reports and considered extenuating circumstances that might have affected the contractor's actions . . . a DCAA official involved in the process told us (GAO) he thought the DoD contracting officer did the best job he could, under the circumstances."
In reaching this conclusion, GAO noted the Corps found KBR did attempt to get competition for the gas and oil that it imported for domestic consumption in Iraq. GAO also found the Corps was able to obtain new information on pricing that was not available to DCAA at the time it issued its reports. Further, the Corps weighed the possibility that if not paid, KBR could prevail in subsequent litigation. According to GAO, DCAA felt all of these factors were appropriately considered by the Corps.
GAO also put to bed the issue of the so-called "sustention rate." Mr. Waxman has expressed disbelief that a majority of the questioned costs were paid by the Corps, while overall about 50 percent of DCAA questioned costs are sustained (ie, not paid by the agency.) But both GAO and DCAA say "sustention rates" regarding individual audit reports are not directly comparable and that, in any event, the "sustention rate" under the RIO task orders fit within the overall pattern for other Iraq contract actions. In this regard, GAO held: "DCAA officials told us that it is not unusual to have a sustention rate of 0 percent or of 100 percent on an individual audit, and these were common in the two groups we looked at."
The bottom line is, there's more than enough going wrong in Iraq; we don't need to make stuff up. No one ignored auditor findings here, as Mr. Waxman charged. All factors were considered, all charges put under a microscope. The rights of taxpayers were protected. The vast majority of costs were found by independent investigators to be reasonable.
Contracting in a war zone is complicated stuff. Mistakes get made. The important thing is whether mistakes are addressed and fixed at the end of the day.
Posted by: Dave | August 10, 2007 9:01 AM
Rubish all of it. They are all not to be trusted.
Posted by: Anonymous | August 14, 2007 9:20 AM
Rubish all of it. They are all not to be trusted.
Posted by: Anonymous | August 14, 2007 9:20 AM
what happened to the investigation of the $67,000,000 fuel overcharge that halliburton beat the government for, in the first year of this war?
if halliburton moves its hq to dubai, doesn't that make them a foreign contractor, and ineligible for u.s. government contracts?
this is the most corrupt regime in american history, and an embarrassment to us all.
Posted by: david weinstock | August 15, 2007 8:37 AM
good thing O'Harrow was able to add in blog comments from the Halliburton lawyer, who got his 2 cents worth in there. Now we understand their point of view.
Also, Joey, thanks for the misleading info on Halliburton's profits.
First, the 3% is based on the total contract amount, whereas the operating capital invested is about 1/12th of that total. They invoice and get paid monthly. So, ROI would be around 12 X 3%.
Second, this is a "cost reimbursement" contract, so the Government pays for a lot of so-called "costs" that an ordinary reader might think would normally come out of profits - fresh flowers every day in corporate headquarters, for example. The company yacht used for entertaining.
Posted by: ErikP | August 15, 2007 10:36 AM
How is it that KBR has 10 empoyees assigned to a job site when only 3-4 are needed? Then all 10 ensure they submit time sheets for a 12 hour shift as work completed....7 days a week!! Now the real kicker is tha the 3-4 that actually are working only perform duties about 5 of the 12 hours. This is one job site.........
Posted by: Robert | August 16, 2007 12:02 PM
Why all the concern about the bidding process when our congress ruled it illegal for medicare to go for the lowest bidder for our dug program?
Posted by: charles kelly | August 18, 2007 8:17 PM
The comments to this entry are closed.
Is the DCAA report available to the public? If so, where?