Inside a war-time contract

Introduction

Over a period of six months, the contracted value of one Iraqi task order of Halliburton subsidiary Kellogg, Brown & Root grew by a multiple of 36 and was modified 21 times, according to previously classified documents obtained by the Center for Public Integrity.

The task order, which was part of the March 8, 2003, no-bid Iraqi oil restoration contract awarded by the Army Corps of Engineers to KBR, increased from its original ceiling of $24 million to $887.37 million. Under task order 0005, which originally had a performance period of 90 days, KBR was responsible for importing fuel to Iraq. KBR did not break the $7 billion ceiling that had been specified for the sole-source contract, but the frequent modifications to the task order, which lays out specific work requirements under the contract, have some questioning the process.

The General Accounting Office, which did not specifically investigate the KBR oil contract, expressed concerns about revisions to contracts and task orders for work in Iraq. “Task orders were frequently revised. These revisions generated a significant amount of rework for the contractor and the contracting officers. Additionally, time spent reviewing revisions to the task orders is time that is not available for other oversight activities,” David M. Walker, the comptroller of the General Accounting Office, told a June 15 Congressional hearing on contracting and the rebuilding of Iraq. “While operational considerations may have driven some of these changes, we believe others were more likely to have resulted from ineffective planning.”

Dan Guttman, a government contracting expert who serves as a consultant to the Center for Public Integrity, said he understands the need for flexibility, but that it should also apply to oversight. “Where urgency is used to justify an order-of-magnitude increase in the costs of a single contract task only months after the task was assigned, officials must be able to show the President, the Congress and the public that the change reflects the legitimate exigencies of emergency, and not failure of planning or contractor oversight,” Guttman said.

Lu P. Christie, a spokesman for the Army Corps, told the Center that the Iraqi Ministry of Oil, the Pentagon’s Office of Reconstruction and Humanitarian Assistance and the Coalition Provisional Authority “defined the requirements and approved the funds. The $24 million and the 90 day performance period were based on an estimate of how much money and time it would take during which benzene and LPG [liquefied petroleum gas] would have to be imported to meet domestic needs on a temporary basis. The expectation was that the refineries would be working again in thirty days and be able to meet demands soon after.”

The contract KBR received on March 8—contract DACA63-03-D-0005—had a ceiling of $7 billion and would eventually include 10 distinct task orders. KBR did not come close to reaching the contract ceiling. The company did work for just over $2.5 billion, and no additional task orders are being added to the contract, according to the Army Corps of Engineers.

On Oct. 29, 2003, the Center for Public Integrity filed suit against the Army Corps for failure to fully and promptly respond to Freedom of Information Act requests. During the course of the Center’s lawsuit against the Army Corps, the agency decided to declassify the KBR oil services contract and released a copy to the Center.

Task order 0005 provides insight into the way contracts can increase or decrease in value in a short time period. On May 4, 2003, the Army Corps expected KBR to complete all work on task order 0005 within 90 days and not exceed $24 million. The Statement of Work requires the company to develop plans and project schedules “showing each activity and duration and estimated costs.” After submitting these schedules within a week of receiving the task order, the contractor is required to send weekly updates and work scheduled for the next week. Three weeks after being awarded, the ceiling of $24 million was reached. Another 20 modifications later and the task order was worth nearly $900 million. After that, task orders 0007 through 0010, totaling up to $619.8 million, were issued for work apparently identical to task order 005.

Christie denied that the increases were arbitrary. “Sabotage and looting increased both the funding and the time required. The level of sabotage and looting were significant and continued over time—both to the oil infrastructure and to the electrical system upon which the oil system depended,” Christie said. “As MOO/ORHA/CPA defined new requirements and approved funding for those requirements, the task order amounts were adjusted.”

Halliburton, the parent company of KBR, has come under scrutiny because of allegations of overcharging on food service and fuel distribution, poor management and close ties to the administration. In June 2004, Time magazine reported that a March 5, 2003, e-mail written by an Army Corps official referred to the awarding of the oil restoration contract as having been “coordinated” with Vice President Richard Cheney’s office, an allegation that was denied by the vice president’s spokesman.

Two audit reports from the Defense Contract Audit Agency on Jan. 13 and May 13 found several deficiencies in KBR’s billing system. As a result, KBR is required to “provide all billings to DCAA for provisional approval prior to submission for payment.” The agency is withholding $186 million in payments for food service until KBR provides additional data showing that the meals billed actually were provided, according to congressional testimony by William H. Reed, the director of DCAA.

The Pentagon’s Inspector General also launched a criminal investigation in February 2004 into whether KBR overcharged the government while it was importing fuel from Kuwait to Iraq. Patrice Mingo, a spokeswoman for Halliburton, told the Center that the company has not received an official notification of an investigation by DOD’s IG office. A Pentagon spokeswoman said the investigation is on-going. In a February press release the company said it welcomes a review of all its government contracts. “This is a step toward resolution of the issue. In the current political environment, it is expected,” Halliburton spokeswoman Wendy Hall said. According to media reports, initial findings by Pentagon auditors allege that KBR overcharged the government by $61 million. “It’s unfair to accuse Halliburton of paying too much for Kuwaiti fuel when KBR was told to buy the fuel and given approval to purchase it from a specific supplier,” Hall said in the press release. The company denies overcharging.

The ten task orders awarded under the initial March 2003 contract were for the following:

Task order 0001 was awarded on March 10, 2003, under the existing worldwide logistic contract LOGCAP. Some of the key tasks included the procurement and pre-positioning of equipment and people for responding to oil well fires and oil spills in the early stages of Iraq hostilities. Originally allocated up to $34.6 million, it was completed for $10.7 million.

Task order 0002 was for the development of “designs, equipment lists, specifications, and execution timelines/project schedules … for a rapid restoration of a 1.0 MMBD [million barrels/day] processing and export capability” for Iraq’s oil infrastructure. The task order was awarded on March 10, 2003, and had a ceiling of $6.7 million. It was completed for $1.5 million.

Task order 0003, awarded on March 20, 2003, had an original ceiling of $7 million. The task order called for teams to deploy from Kuwait for the safe shutdown and damage assessment of the Iraqi oil infrastructure, including responding to oil spills, as soon as coalition forces secured the facilities. In May 2004, Army Corps figures indicated this task order’s ceiling had increased a hundred-fold, to $744.3 million.

Task order 0004, also awarded on March 20, 2003, is to provide and maintain base camp areas for approximately 5,000 contractors and government personnel, including “lodging, dining, transportation, health and welfare services and recreation.” Originally $2 million, its ceiling in May 2004 was $46.3 million.

Task order 0006, valued at $222 million, supports the restoration of a pipeline crossing the Tigris river and the construction of a pipeline from Kirkuk to the Tigris river. It was awarded on Dec. 8, 2003.

Task orders 0007, 0008, 0009 and 0010 of the initial contract call for KBR to “repair fuel product distribution systems, procure, import and distribute refined products (liquid products) and gas products (mixtures of propane and butanes referred to as LPG)” for commercial and private use within Iraq. The work statements also require KBR to monitor fuel demand to prevent and limit the potential for fuel shortfalls.

Task order 0007 with a value of $325 million was awarded on Dec. 4, 2003. The Army Corps of Engineers awarded the $180 million task order 0008 on Jan. 30, 2004. On March 2, 2004, $164.8 million was added under task order 0009. Two days later, the Army Corps reduced the task order by $100 million. Task order 0010 with a value of $50 million was awarded on March 19, 2004. The period of performance for the four previous mentioned task orders is “from date of award until March 31, 2004 or until funds are expended, which ever occurs sooner,” according to the declassified task orders the Center obtained.

Task orders 0006 through 0010 are all funded by the Development Fund for Iraq.

Below is a timeline for Task Order 0005.

May 4, 2003
Task order 0005 is issued; it is not to exceed $24 million. Work is expected to be competed within 90 days.

May 23, 2003
Task order 0005 is increased by $20 million to $44 million.

June 3, 2003
A month after being awarded, task order 0005 has more than doubled. It is increased by $8.37 million to $52.37 million.

June 5, 2003
Another $20 million is obligated for a total of $72.37 million.

June 13, 2003
$21 million is added. The total is now $93.37 million.

June 20, 2003
Another $21 million is added for a total of $114.37 million.

June 27, 2003
The Army Corps of Engineers obligates another increase. The task order is now at $129.37 million after $15 million is added.

July 2, 2003
Less than a week later, $33 million is added to the task order. Originally the ceiling was $24 million for 90 days. After two months, the obligated amount has reached $162.37 million.

July 11, 2003
The total amount is increased by $6 million from $162.37 million to $168.37 million.

July 16, 2003
Another $15 million is added for a total value of $183.37 million.

July 21, 2003
Six million is obligated to the task order. The total amount is now $189.37 million.

July 23, 2003
An additional $6 million is awarded. Task order 0005 is now at $195.37 million.

July 25, 2003
Two days later an increase of $18 million is obligated. In less than 90 days, the task order has increased from $24 million to $213.37 million.

July 31, 2003
The largest increase to date, $180 million—more than seven times the original ceiling—is added to the task order for a total amount of $393.37 million.

August 2, 2003
A couple of days later, the task order is at $348.37 million after the Army Corps decides to “deobligate” $45 million.

August 3, 2003
After 90 days, the performance period is extended by another 90 days from Aug. 3 to Nov. 1.

August 20, 2003
The task order is decreased by $6 million to $342.37 million.

September 5, 2003
The $500 million mark is cracked after an increase of $245 million. The total value is now $587.37 million.

September 24, 2003
The Army Corps decreases the task order by $25 million to $562.37 million.

October 16, 2003
The time period between the changes is longer, but the amounts get larger. Two-hundred million is added to task order 0005. The total amount is now $762.37 million.

November 2, 2003
Another 90 days has passed. The Army Corps extends the performance period by another 90 days from Nov. 1, 2003 to Jan. 30, 2004.

November 14, 2003
The last modification to task order 0005 is an obligation of $125 million. Just over six months after the award date—when the ceiling was $24 million—the total amount is $887.37 million.