Global Policy Forum

By Mark Fineman

The Pentagon has paid nearly $90 million to a subsidiary of the well-connected Halliburton Co. to cater to the Americans who are working to rebuild Iraq, U.S. officials said — while the reconstruction effort has yet to show significant results for ordinary Iraqis. The Defense Department gave Halliburton's KBR exclusive rights to the job — which has included fixing up an extravagant presidential palace being used by the Americans — under a broad U.S. Army logistics contract that pays the company a fee based on a percentage of everything it spends, according to Pentagon documents and Halliburton's corporate filings.

KBR, whose parent firm has had strong ties to Vice President Dick Cheney, has drawn scrutiny for an emergency oil contract in Iraq that is becoming increasingly lucrative. Under a "task order" from the lesser-known logistics contract, the Defense Department has rung up KBR's multimillion-dollar bill — which is expected to nearly double — as the number of U.S. officials and Iraqi exiles working for the Pentagon-created reconstruction agency balloons. In blocks-long convoys from Kuwait, the firm is hauling in everything from prefabricated offices, showers, generators and latrines the size of trailer homes to food and bottled water.

As supplies for the Americans continue to arrive by the ton, little of the millions KBR is spending have gone into the Iraqi economy that Washington has pledged to restore. KBR's logistics job gives it no direct role in the rebuilding of this shattered country; that falls to the Bush administration's ambitious $2.4-billion reconstruction program, which is being overseen by the State Department. The company's most lucrative subcontracts are with trucking, catering and security companies based in neighboring Kuwait and Saudi Arabia, oil-rich nations with the best land routes into Iraq. KBR and Pentagon officials say hiring Iraqis and buying local goods are a top priority. Although the company subcontracted with one Iraqi-owned firm that has bought local goods and recruited more than 350 Iraqis to work for the Americans, the firm estimates that the move has put just $100,000 into the local economy so far.

Fodder for Critics

Antiwar activists have asserted that U.S. corporate profits were among the motives in waging the campaign in Iraq, which has the second-largest oil reserves on the globe. Other critics have charged that the Dallas-based Halliburton has received preferential treatment from the Bush administration. Cheney was Halliburton's chief executive officer for five years until he resigned in August 2000 to be George W. Bush's running mate. Cheney no longer owns stock in the company, and spokesmen for both the Pentagon and KBR deny favoritism; both said the Army logistics contract sanctioning the company's work for the Iraq reconstruction agency was competitively bid before it was awarded in 2001.

But another contract that KBR won to repair Iraq's oil fields and put out postwar oil and gas fires was not competitively bid. And it has been a lightning rod for criticism. The Army Corps of Engineers, citing urgency and the need for secrecy, awarded KBR the exclusive, classified oil contract March 8, after KBR had done a similarly classified study on how to solve Iraq's postwar oil problems. Rep. Henry A. Waxman (D-Los Angeles) is spearheading an effort to expose details of the KBR oil contract, and his latest exchange of letters with Army Corps commander Lt. Gen. Robert Flowers this week disclosed that the scope of work for Halliburton's subsidiary in Iraq's oil industry goes well beyond firefighting and emergency repairs.

In a May 2 letter, Flowers wrote that the Halliburton contract also includes "operation of facilities and distribution of products" for the Iraqi oil industry. Flowers added that the contract, which has a ceiling of $7 billion but is expected to cost much less, will continue at least until August, when the corps is planning to issue a competitively bid contract to repair Iraq's oil infrastructure that could run through 2004.

Lesser-Known Contract

Far lesser known is the contract that the Pentagon used to deploy KBR to set up, cater to and care for the Iraq-based officials of the postwar reconstruction agency here. That contract has no cost ceiling. Dubbed the Logistics Civil Augmentation Program, the contract was awarded in December 2001 and can remain in place for up to 10 years. Specifically, it requires KBR "to deploy within 72 hours of notification and to deliver combat support and combat service support for 25,000 troops within 15 days," according to Halliburton's corporate documents on file with the U.S. Securities and Exchange Commission.

The logistics program "provides the war fighter with additional capabilities to rapidly support and augment the logistical requirements of its deployed forces through the use of a civilian contractor," the company stated in the press release that announced the contract award, which was dated Dec. 14, 2001. The company has billed the Pentagon for hundreds of millions of dollars for work done under the contract during America's rapidly expanding military presence abroad since the Sept. 11 attacks. It has built and maintained bases and other facilities and catered to the needs of U.S. troops in Afghanistan and even Djibouti, a key East African outpost in the U.S.-declared war on terrorism.

An official in Baghdad with the Pentagon's Office of Reconstruction and Humanitarian Assistance, known as ORHA, insisted that the company's work for the agency is appropriate under the contract: "This was an Army mission. It's supporting the Army, which is supporting ORHA." The official said he doubted that KBR's work for the reconstruction agency would exceed $200 million, but he added that it already has eclipsed original estimates because the agency and its mission have grown exponentially — and far beyond what KBR and the Pentagon had projected when they planned the job in January. The company's initial work order for the Iraq job was for $69.5 million, based on an ORHA work force of about 350 in three sectors — the north, the south and central Iraq. As of this week, ORHA staff has ballooned to more than 1,000 people throughout the country, which the agency has now divided into four sectors, and the ORHA official said he expects the agency's staff to grow to as many as 2,000 in the months ahead.

A second "task order" for an additional $20 million was issued by the Army last month, and the Pentagon is in the process of awarding a third one. "We're expecting a significant increase," the ORHA official said, indicating that the increase will be more than what KBR already has spent. KBR's task has been logistically taxing and dangerous, and most defense industry analysts say few other companies could manage it. Its truck convoys move through several hundred miles of desert and urban areas that the U.S. military still has not fully secured. And the massive Republican Palace in Baghdad that serves as the agency's national headquarters is a contrast in grand opulence and harsh subsistence: More than 650 agency personnel sleep in grand halls of Florentine marble, crystal chandeliers and gold leaf — on cots.

The palace still has no running water. Electricity has been spotty, and until this week, most of the reconstruction agency's staff was dining solely on military meals-ready-to-eat rations. The Babel Tourist Hotel, which the agency commandeered last week as the headquarters of its "south-central sector" in Hillah, an hour's drive south of the capital, is in similar shape. On Wednesday, KBR-contracted trucks were bringing in prefabricated buildings, office pods and generators. And in Baghdad, a small army of the Iraqi workers hired by the newly formed, London-based Iraq Project & Business Development Co. is grateful for work that starts at $2 a day to clear garbage, clean latrines and mop the palace floors. A scene at the palace one typical afternoon this week underscored the contrasting economies that are part and parcel of KBR's job here.

As several Iraqi supervisors assembled a group of carefully selected KBR cleaning recruits from Baghdad's desperate work force, Saudi and Kuwaiti truckers making as much as 200 times the Iraqis' salaries were bringing in imported computers, desks, chairs and other furniture. When asked specifically what is covered by KBR's "task order" to serve the basic needs of the reconstruction agency, the ORHA official in Baghdad replied: "I guess the real question is, what doesn't it cover?"

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