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"Rigged from the Beginning"

Once secret Halliburton oil contract rakes in billions long after Army said work would be competitively bid
by David PhinneySpecial to CorpWatch
September 30th, 2004

Cartoonist: Khalil Bendib

In June 2003, amid public outcry and congressional protests, the Pentagon announced it would replace Halliburton's secretly-awarded multi-billion dollar contract for rebuilding Iraq's oil infrastructure with publicly bid contracts.

Following six months of delays, the Army Corps finally awarded two additional contracts in January 2004. One valued for as much as $800 million went to Parsons Energy. A second with a cap of $1.2 billion was awarded to the Halliburton subsidiary, Kellogg Brown & Root (KBR).

When announcing the new awards, the Army Corps claimed that these two contracts completed a "pre-war acquisition plan" to replace the non-competitive contract first given to Halliburton "with full and open competitive contracts."

But despite repeated portrayals that the original secret contract would be opened up to competition, Halliburton continued working under the original March 2003 agreement known as Restore Iraqi Oil (RIO). To date, that controversial contract has now racked up over $2.5 billion dollars in billings for oil industry repairs and fuel deliveries. The whopping sum is over and above whatever work Halliburton is additionally performing under the second $1.2 billion contract, according to Army Corps records.

By comparison, Parsons Energy told Corpwatch it has billed only $120 million so far on its share of the "competitive" contract.

This pattern of proclaiming competition but awarding mainly to Halliburton still bothers Sheryl Tappan, a former contract proposal writer and consultant for Bechtel, one of the world's biggest engineering firms. She worked on the San Francisco firm's bid in the promised "open" competition for the oil construction work, but soon judged the effort as futile.

"The competition was rigged from the beginning" she said recently.

That's why she recommended that Bechtel pull its proposal for a share of the oil work two weeks before the due date.

Her reasoning to the firm's executives was simple.

After 12 years in the business of writing successful proposals, including government contracts worth billions of dollars, Tappan had decided that the competition for Halliburton/KBR's work was a "sham."

Competition?

The competition outraged Tappan so much that she published a book last April detailing the process, which the U.S. Army Corps of Engineers managed at its Fort Worth/Dallas office. Titled Shock and Awe in Fort Worth, Tappan relies on scores of official documents and professional insight to build her argument that cards were stacked in favor of Halliburton/KBR from the outset.

The self-published book has yet to make a best seller list, but it has captured the attention of congressional Democrats who invited her to explain her claims at a hearing sponsored by the Senate Democratic Policy Committee.

"Officials up and down the chain of command ignored our federal laws and regulations and the procedures that normally ensure fair play," she said during the September 10 hearing.

Never before in her professional career has she seen "the arrogant and egregious ways in which the Corps treated Halliburton’s competitors," Tappan added.

After the competition's completion, the Army Corps awarded the two "follow on" contracts on January 16, 2004. Halliburton/KBR received the $1.2 billion agreement for additional work in southern Iraq while Parsons Energy and Chemical Group (in partnership with the Worley Group of Australia) was awarded up to $800 million for similar work in northern Iraq. Parsons and Halliburton/KBR are both headquartered in Houston.

But more significantly, Haliburton's original RIO contract never ended despite earlier claims by the then commander of the Army Corps, Lt. Gen. Robert Flowers, that the agreement would be opened up to competition.

"There will be ample opportunity to competitions of the overall requirements to support the restoration of Iraq's oil infrastructure," he said in a April 8, 2003, letter to Rep. Henry Waxman, a California Democrat who has doggedly questioned Haliburton's Iraq contracts.

The original RIO contract to Halliburton was "designed from the outset as a bridge to competition and structured accordingly," Flowers then wrote in a second May 2, 2003, response to Waxman. "We will limit orders under this contract to those service required prior to the availability of competitively awarded contracts."

But the billable work by Haliburton/KBR now stands at $2.522 billion from the original secret RIO agreement made in March 2003. While there was some overlap of the RIO and the subsequent contracts, work under the RIO came to a close this September, according to the Corps of Engineers. A final bill is still being negotiated.

Meanwhile, the contracts that were subsequently opened for competition to meet the "overall requirements" remain just a fraction of that work -- something that Bechtel anticipated during the competition and which convinced the firm to drop out of the competition, according to a company spokesman.

"The company believed it would not lead to additional work," he said.

To date, Parsons has billed approximately $120 million for its work, according company spokesman Don Lasses, who adds: "We fully anticipate to be doing more."

Haliburton/KBR referred inquiries to the Pentagon about what amount has billed under the second $1.2 billion Halliburton/KBR contract awarded in January, but the Pentagon has yet to find the figures for Corpwatch.

No one from the Defense Department appeared at the September 10 Democratic Policy Committee meeting to respond to Tappan's charges and the Army Corps of Engineers has consistently insisted during congressional hearings and to the news media that the process was "full and open."

But Tappan's perspective remains compelling to critics of the events, not only because it is rare for someone with first-hand knowledge of contract competitions to publicly fault the government, but also because her professional eye carefully follows the threads leading to Haliburton's central role in rebuilding Iraq's oil industry.

Contracts fall like dominos

Key to that trail is an original 10-year contract worth up to $10 billion, known as the Logistics Civil Augmentation Program contract, or LOGCAP, an agreement for providing military support services around the world to the Army. That contract, signed in 2000, has reaped a total of $7.2 billion for services provided in Iraq, according to Pentagon documents prepared for the news media.

Originally intended for logistical services such as transportation, food preparation, base building and maintenance, the Army expanded the LOGCAP contract beyond its original scope in November 2002 to include an unrelated $2 million task to plan for possible oil well fires following the invasion of Iraq. That small project led to a second $60 million task order to preposition firefighting equipment and then a third in March 2003: The controversial $7 billion contract for rebuilding Iraq oil infrastructure would last two years and allow for a seven percent markup over actual costs.

"Like dominos, three lucrative assignments fell into Halliburton's hands," Tappan says.

A subsequent congressional investigation of Iraq contracts by the Government Accountability Office found that the original $2 million firefighting task violated federal acquisition regulations because the work was unrelated to the intent of the original LOGCAP contract. Nevertheless, the firefighting plan led directly to the secret $7 billion contract for restoring Iraq's oil infrastructure, GAO determined.

"DOD planners believed early on that issuance of this task order (for firefighting) would result in Kellogg Brown & Root (KBR) being uniquely qualified to initially execute the plan for restoring the Iraqi oil infrastructure," GAO found.

Pentagon officials subsequently claimed that the military faced an emergency situation and needed swift and decisive action, a reasoning that ostensibly mitigated any skirting of the rules.

But the $7 billion secret contract set off a barrage of criticism in Congress and questions from the news media. In April 2003, Henry Waxman, the top Democrat on the House Government Reform Committee, began firing off letters to the Army Corps with demands for more information about the agreement.

Details were slow in coming as a lasting storm of controversy arose over whether or not Vice President Dick Cheney or his office influenced the decision because Cheney had once headed Haliburton from 1995 until 2000 before joining President Bush's election campaign.

Pentagon officials who took part in awarding the contract and Cheney's office have regularly rejected the notion that the vice president was involved.

It was less than a month after Waxman's initial inquiries, that the Army Corps first signaled that Halliburton's secret RIO contract would be put into competition at the "earliest opportunity."

Haliburton embedded

Tappan, a San Francisco Bay Area resident, has no evidence of Cheney's possible involvement, but she says she is convinced the resulting competition was engineered simply to silence critics while ensuring that the lion's share of work remained in Halliburton's hands.

As if describing a shell game, Tappan documents how the Pentagon seemed to repeatedly change the scope of work that would be needed to repair Iraq’s oil fields and pipelines and the way the Army frequently postponed deadlines. When contracts were finally awarded, the competition had taken six months longer than originally announced.

Meanwhile, Halliburton's work continued to grow under the original RIO contract.

What's more, the Corps relied heavily on Haliburton during this period to develop the Oil Infrastructure Final Work Plan, an outline for the projects being offered under the future contracts.

Federal acquisition regulations require that such material be made available to all bidding companies in the competition as soon as possible, but only Haliburton had firsthand knowledge of the plan it helped create, Tappan believes. The other companies bidding for the work did not receive the information until August 1, just 13 days before proposals were originally due.

"Not a single release mentioned the existence of the plan or any of its contents," Tappan said despite ample opportunity to do so.

Halliburton/KBR had no inside edge over its competitors, counters Gordon Sumner, contracting director for the Army Corps of Engineers Southwestern Division, who managed the competition.

"KBR did not have an advantage, other than having been in Iraq on-the-ground as did several other firms that submitted proposals," he said.

As far as developing a final work plan, Sumner said KBR had been contracted to conduct an assessment of Iraq’s oil infrastructure as part of the RIO contract.  As these documents were being complied, various prospective proposers requested them. 

"To cut down on paperwork we merely posted them to our public Website for all to see," he said.

Sumner admitted there were some problems with the statement of work being mistakenly attached to a different section in the initial request for proposals because a new database system was being installed, but the companies understood the error, he said. 

The proposal was also revised in one of the final amendments to "clarify "our needs," Sumner said, adding that the amount of work also increased from $1 billion to $2 billion during the competition.

"To plan and execute a formal source selection competition worth up to $2 Billion for a service requirement in less than a year may be near record fast," he concluded.

Still, many other high-value reconstruction contracts for Iraq were being competed during the same period in far less time by USAID. None have generated the controversy that those with Halliburton have.

The close cooperation between the Corps of Engineers and Haliburton first revealed itself at a July 2003 meeting in Baghdad where the Corps, Haliburton, the Coalition Provisional Authority and the Iraqi Ministry of Oil gathered to discuss the final work plan and how it would be executed, Tappan says.

A similar three-day meeting in August took place at MacDill Air Force Base near Tampa, Fla., according to The New York Times, leading some business executives to privately grouse about possible favors to Haliburton. Those companies that did attend were only "commercial contractors currently working in Iraq," a spokesman for the United States Central Command told the newspaper.

Misrepresentations have been ongoing ever since the first task order for fighting oil well fires was awarded, Tappan claims in her book. While the Pentagon first reasoned that Haliburton's KBR was the best qualified company because the firm had fought the 320 fires in Kuwait in 1991 after the Gulf War, Tappan finds the rationale to be nonsense.

"It was Bechtel that managed the entire firefighting and oil field reconstruction program in Kuwait -- in half the time experts said it would take," Tappan says.

Haliburton spokeswoman Wendy Hall disputes this claim. "Our client was the Kuwait Oil Company," she says. "Haliburton crews helped bring 320 wells in Kuwait under control in less time than was expected following the Gulf War. More than 190,000 work hours were incurred on this project without a lost-time accident. Originally scheduled as an 18-month project, Haliburton's crew assisted in extinguishing 90 percent of the blowouts within one year of the beginning of operations."

Some believe Haliburton may be exaggerating its role. In April 7, 2003 interview with the Engineering News Record, a former president of Bechtel Construction, Terry Farley, says that Haliburton's role in Kuwait was minimal and that the company had "put out no fires -- zero."