More Flak on Halliburton Deal

The Pentagon’s exclusive no-bid contract with a Halliburton Co. subsidiary for emergency oil-field services in Iraq could be worth as much as $7 billion over the next two years, according to a document made public Thursday.

The disclosure gave fuel to critics of the deal, who said a contract that large should have been put out for open, competitive bidding.

“I was surprised about the size of the contract and the fact that they’re not going to have competitive bidding,” Rep. Henry A. Waxman (D-Los Angeles) said Thursday.

“I didn’t know we were talking about a contract of this magnitude.”

The $7-billion ceiling was revealed in a letter to Waxman from Lt. Gen. Robert B. Flowers, the commanding general of the Army Corps of Engineers. Flowers called the amount “an estimate of worst-case damage” from oil and gas fires in the war-torn country. Flowers noted in the April 8 letter that the Houston-based energy giant and its subcontractors were authorized to spend $50.3 million in the first month.

In a March 26 letter seeking more information about the deal from Flowers, Waxman expressed concern that the contract was awarded in secret and could range into the “tens of millions” of dollars.

In public statements, the Army Corps has downplayed the size.

“This is not going to be a huge dollar contract ... if nothing changes from today,” Lt. Col. Gene Pawlik, an Army Corps spokesman, said last week.

In fact, only eight oil and gas wells and pipelines have been set ablaze in Iraq. All but one fire have been extinguished either by subcontractors or by Kuwaiti Oil Co. firefighters.

But in a written response to Flowers on Thursday, Waxman questioned the decision to set the ceiling so high before officials had an idea of what the scope of the work would be.

“Why did the Army Corps issue a two-year, $7-billion contract to perform work that is intended to be short term and limited in nature?” Waxman asked.

“It may be the case that the administration had valid reasons for granting a sole-source contract for emergency work during armed hostilities,” he continued. “It is harder to understand, however, what the rationale would be for a sole-source contract that has a multi-year duration and a multibillion-dollar price tag. Yet this appears to be the type of contract that was awarded.”

Flowers’ office didn’t return calls for comment.

Waxman and Rep. John D. Dingell (D-Mich.) recently called for an investigation into whether Halliburton and its subsidiary received favored treatment in the awarding of the contract.

Vice President Dick Cheney was Halliburton’s chief executive for five years before he resigned in August 2000 to be George W. Bush’s running mate.

Halliburton and the Army Corps both have repeatedly denied any favoritism stemming from Cheney’s former role in the company.

The contract was awarded to Halliburton’s Kellogg Brown & Root subsidiary March 8 and made public March 24.

Kellogg Brown & Root was selected because, under a separate Army logistics contract, it already had developed contingency plans for repairing and operating Iraq’s oil infrastructure, Flowers said in the letter.

The military wanted firefighters and disaster specialists in Kuwait “in advance of possibly imminent hostilities,” Flowers said.

“Under the circumstances, no other contractor could satisfy mission requirements in the time available.”

The contract specifies that in addition to fighting oil and gas well fires, KBR would respond to oil spills and provide life-support facilities and services to contractors and government employees on the project.

Flowers said in his letter that KBR could earn a profit of up to 7% above the costs reimbursed by the Army -- a total profit of $490 million if the contract ran to its maximum.

In disclosing the $7-billion “ceiling cost,” Flowers stated:

“The actual value of the contract will depend on the cost of the orders placed under it. It is impossible to predict how much damage there will be and what work will be required in the near term.”

Flowers stressed that the contract was strictly for emergency oil-field services. “There will be ample opportunity for competition” on other contracts to support the recovery of Iraq’s oil infrastructure, he added.

More than two weeks before the war began, Kellogg Brown & Root sent to Kuwait teams of firefighters from Houston-based Boots & Coots International Well Control Inc.

That company has a strategic alliance with Halliburton, giving it the inside track on such work when Kellogg Brown & Root is the prime contractor.

The bidding process for civilian contracts being issued by the U.S. Agency for International Development for the reconstruction of Iraq’s infrastructure also has drawn criticism.

Those bids were invited in secret during the run-up to war. In addition, the agency asked only American companies with security clearances and a track record of working with USAID, to bid on eight contracts that total $1.7 billion.

On Thursday, three senators introduced a bill that would require USAID and other federal agencies to publicly justify any closed bidding process for reconstruction work in Iraq.

“The pattern of closed-door bargaining for massive contracts is a distinct departure from the way that government contracts have traditionally been awarded,” said Sen. Ron Wyden (D-Ore.), who sponsored the bill with Sens. Susan Collins (R-Maine) and Hillary Rodham Clinton (D-N.Y.).

Added Clinton: “It would be unfortunate if, in our effort to set an example of open government and democratic principles abroad, we undermined those principles here at home.”

USAID Administrator Andrew Natsios and other agency officials have said they resorted to the streamlined, classified bidding process because of national security and time constraints.

Under the agency’s normal “full and open” competitive bidding process, it can take as long as six months to award a contract. The expedited process takes as little as two months.

Those officials added that the process is permitted under exemptions in federal law and that the agency’s contracting officers took pains to expand the competition as widely as possible under the emergency circumstances. Most of the requests for bids were sent in February and early March.