Contract Flaws in Iraq Cited

Times Staff Writer

The Pentagon’s effort to rebuild Iraq came under the sharpest fire yet Wednesday from critics who described a process rife with poor oversight, questionable spending and long delays that endanger the country’s security.

A government audit memo and a briefing given to congressional Democrats indicated systematic problems in the contracts awarded to Halliburton Inc., the largest contractor in Iraq. And a senior U.S. military officer criticized delays resulting from the recent collapse of a crucial contract to equip Iraqi security forces.

The revelations cast new doubts on the rebuilding effort on the eve of what could be a combative congressional review of one of the largest such U.S. initiatives undertaken in any country.

Pentagon officials fought back by insisting that their effort was on track. They pointed to the award late Wednesday of the first of an expected wave of new reconstruction contracts totaling $5 billion.


The latest contracts, worth $129 million and awarded to five companies, including three from California, were handed out a month behind schedule.

“Work is moving along very nicely,” retired Adm. David Nash, the Iraq reconstruction czar, said in a Pentagon news briefing Wednesday. “We do have construction underway in this country, and there’s more to follow.”

But the contract award announcement was swamped by criticism from several fronts.

The Pentagon’s dealings with Halliburton, an oil company run by Vice President Dick Cheney between 1995 and 2000, came under fresh questioning in a memo circulated among Democratic members of the House Government Reform Committee, which was to hold a hearing today on the rebuilding effort.


Halliburton is facing several investigations, including charges that it overbilled the government $61 million in fuel costs and that it charged up to $177 million for meals never served to U.S. troops. A criminal investigation in the U.S. and Kuwait also has been launched into an incident in which one or two Halliburton employees allegedly took kickbacks for helping a contractor overcharge by $6 million. Halliburton has returned that money.

The memo, from Rep. Henry A. Waxman (D-Los Angeles), described a briefing given by the General Accounting Office to investigators from the Government Reform Committee on Feb. 13. The GAO, the investigative arm of Congress, is independently examining Iraq reconstruction contracts.

In the briefing, GAO officials described a lack of sufficient government oversight of the Halliburton contract, the memo said. They told committee staffers that some of the contract monitoring was being done by military reservists with only two weeks’ training. In another case, the memo said, the GAO found that a $587-million contract had been approved in 10 minutes based on six pages of documentation.

They also described a single, $700-million “discrepancy” in which Halliburton told the government that it would cost $2.7 billion to provide food and other logistics services, the memo said. After questioning by the Defense Department, the company slashed its estimate for the work to $2 billion -- though it never fully explained how it had reached the new figure, the memo said.


A GAO spokesman confirmed that a briefing had taken place, but declined to comment on its contents.

The Waxman memo also excerpted material from a December preliminary audit of Halliburton’s activities that was conducted by the Defense Contract Audit Agency.

The audit found “significant deficiencies” in Halliburton’s system for billing estimates submitted under a multibillion-dollar contract with the Army to provide meals, housing and other logistics support, the memo said. Pentagon officials confirmed that an audit had been issued, but declined to release it.

Specifically, the memo said the audit found that Halliburton inflated the billing estimates given to the Army by failing to update information on its subcontractors. The estimates eventually became the basis of billing agreements with the government.


The memo said the audit found that Halliburton had violated federal government regulations on contracting, and that the company’s problems in estimating its costs was “systemic.”

The Waxman memo also mentions an audit agency letter sent to the Army Corps of Engineers on Jan. 13, which Pentagon officials released to The Times.

The letter, coming on the heels of the audit, warned that Halliburton’s internal systems for estimating costs to be submitted to the Army were “inadequate.” The letter advised the Army to contact the auditing agency before entering into any future negotiations.

“Collectively, the deficiencies described above bring into question [Halliburton’s] ability to consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices,” the letter said.


Yet a few days later, on Jan. 16, the Army Engineers issued a new contract to Halliburton for up to $1.2 billion to improve the oil infrastructure in southern Iraq. Army Corps of Engineers officials did not respond to a request for comment.

“The new information has major implications for contracting in Iraq,” Waxman’s memo concludes. “It depicts a situation where costs are virtually uncontrolled and Halliburton can overcharge the taxpayer by phenomenal sums.”

Wendy Hall, a Halliburton spokeswoman, said she was disappointed by the memo, saying that the release of audit excerpts is “inappropriate because the true and complete story cannot be conveyed.”

Hall said Halliburton changed its billing estimate by $700 million in the one case cited by Waxman because the government had changed its demands. She also said Halliburton had disclosed changes in its subcontractors.


She noted that the billing estimates were for planning purposes and that final budgets were locked in only with the approval of the government contracting agency.

“We have not been given a chance to respond to accusations before they are released publicly,” Hall said in a statement. “We believe that every point in Mr. Waxman’s letter has a reasonable explanation, or could be refuted outright.”

Halliburton’s contracts were not the only ones subject to criticism Wednesday.

Speaking just hours before Nash, Maj. Gen. Charles H. Swannack Jr., commander of the Army’s 82nd Airborne Division, criticized the failure of the U.S.-led Coalition Provisional Authority in Iraq to deliver equipment needed by newly formed Iraqi security forces.


Swannack said his division had successfully trained more than 10,000 Iraqis to be police, security and border guards in the volatile region stretching from Fallouja to the Syrian border. But, he said, the forces lacked the equipment needed to fight insurgents and protect the vast Iraqi border.

Swannack voiced frustration that the lack of equipment had hampered Iraqi efforts to secure the region.

The equipment was to be delivered under a controversial $327-million contract that the Pentagon canceled last week, a move that could delay the process for months.

The contract had been awarded to a small Virginia firm with no history of arms dealing. The president of Nour USA, A. Huda Farouki, has close ties with Ahmad Chalabi, a member of the Iraqi Governing Council and a close ally of some Pentagon officials.


The contract was canceled after protests by several competing companies and a report in The Times that found Nour had claimed to be partners with high-profile companies and individuals who said in interviews they had no links to the firm.

“Not only are the security forces bravely leading the fight against terrorists, they are in some cases insisting on doing it alone, not depending on coalition forces,” Swannack told reporters. “If we had the equipment for these brave young men, we would be much farther along.”

Pentagon officials, blaming irregularities in the contracting process for the cancellation, said they were rushing to finalize a new contract. But they predicted it would take 60 to 90 days before a new supplier was selected.

The officials said U.S. commanders in the meantime could use other sources of funding to supply the needed equipment. And they pointed to the contracts awarded Wednesday as evidence that the process, while slow, was moving along.


Aecom Technology Corp., a Los Angeles-based company, was given a $21.6-million contract for managing and coordinating the reconstruction, which begins in earnest later this month with the rebuilding of water, power and other infrastructure. Pasadena-based Parsons and San Francisco-based URS Group are taking part in joint ventures that were awarded contracts to manage rebuilding in specific fields.