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The War on Terrorism's Gravy Train

Cheney's Former Company Wins Afghanistan War Contracts
by Pratap ChatterjeeSpecial to CorpWatch
May 2nd, 2002

Force Provider Training and Test Center in Fort Polk, LA. Photo: US Army
Force Provider Training Center in Fort Polk, LA. US Army

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Logistics Civil Augmentation Program (LOGCAP) Timeline

Queenstown, Vogaria, West Africa -- On July 16, 2000, United States Army scrambled to deploy troops at the request of the embattled Vogarian government in a top secret mission code named Operation Restore Order.

Political and economic instability, factional fighting outside the capital of Queenstown created large numbers of displaced civilians. Large-scale famine and disease were feared. In five days the U.S. Army teamed up with a private company in Texas to deploy and assemble a military camp out of a pre-fabricated kit known as Force Provider to assist the Vogarians.

Vogaria, of course, is a fictional country but the military exercise -- which took place at Fort McPherson, Georgia and the Diamond Reserve Center in Louisiana -- could not be more real. The Logistics Civil Augmentation Program's War Fighter Exercise 2000 was the first ever Department of Defense simulation of civilian contractors assisting the army in rapid response assembly of military bases in a war situation.

The U.S. military has always relied on private contractors to provide some basic services such as construction, dating back as far as the Civil War. But today as much as 10% of the emergency U.S. army operations overseas are contracted out to private companies run by former government and military officials. These private companies operate with no public oversight despite the fact that these contractors work just behind the battle lines. The companies are allowed to make up to nine percent in profit out of these war support efforts. And experience so far has shown that the companies are not above skimming more profits off the top if they can.


Kellogg, Brown & Root Joins the War on Terrorism

Employees of Kellogg, Brown & Root, a subsidiary of Vice President Dick Cheney's former company, Halliburton Corporation of Dallas, Texas, are set to arrive at the Bagram airbase in southern Afghanistan in late April or early May 2002 (the exact date is classified) to take over the support services a Force Provider camp. They are also scheduled to arrive at the Khanabad airbase in Uzbekistan, one of the main military support stations for the war in Afghanistan, to run three Air Force Harvest Eagle camps (an earlier version of Force Provider) for the 1,500 U.S troops based there since October, according to Daniel McGinty, a spokesman at the Defense Contract Management Agency.

Kellogg, Brown & Root will take charge of support services including base camp maintenance, laundry services, food services, airfield services, and supply operations, among others. Gale L. Smith, a spokesperson for the U.S. Army Operations Support Command in Alexandria, Virginia refuses to confirm or deny whether Kellogg, Brown & Root would be working on similar bases in Manas, Kyrgyzstan or other sites in Afghanistan and Pakistan to support Operation Enduring Freedom. The new job is one of the first examples of a lucrative, new ten-year contract that Kellogg, Brown & Root won from the Pentagon on December 14, 2001 titled Logistics Civil Augmentation Program (LOGCAP). The contract is what the Pentagon calls a "cost-plus-award-fee, indefinite-delivery/indefinite-quantity service," which basically means that the federal government has an open-ended mandate and budget to send Kellogg, Brown & Root anywhere in the world to run humanitarian or military operations for profit.


The Revolving Door

Halliburton, Kellogg, Brown & Root's parent company, is a Fortune 500 construction corporation working primarily for the oil industry. In the early 1990s the company was awarded the job to study and then implement privatization of routine army functions under Dick Cheney, then secretary of defense.

When Cheney quit his job at the Pentagon, he landed the job as chief executive of Halliburton, bringing with him, his trusted deputy David Gribbin. The two substantially increased Halliburton's government business until they quit in 2000 when Cheney was elected vice-president, taking multi-million dollar golden parachutes with them. Since then, another former military office and Cheney confidante, Admiral Joe Lopez, former commander in chief for U.S. forces in southern Europe, took over Gribbin's former job of go-between the government and the company, according to Kellogg, Brown & Root's own press releases. Other close friends include Richard Armitage, the assistant secretary of state, who worked as a consultant to Halliburton before taking up his present job.

Critics charge that this is a classic example of the revolving door between government and big business. Bill Hartung, senior research fellow at the World Policy Institute in New York, says: "Cheney gives new meaning to the term revolving door. If he does not get elected president next, I have no doubt he will return to Halliburton when he leaves the White House."

And Harvey Wasserman, author of The Last Energy War, says the Kellogg, Brown & Root contracts are a scandal. "The Bush-Cheney team have turned the United States into a family business. That's why we haven't seen Cheney -- he's cutting deals with his old buddies who gave him a multi-million dollar golden handshake," says Wasserman. "Have they no grace, no shame, no common sense? Why don't just have Enron run America? Or have Zapata Petroleum (George W. Bush's failed oil exploration venture) build a pipeline across Afghanistan?"

Jennifer Millerwise, a spokesperson for Cheney's office, denies that there was any contact help from the White House. "The vice president did not discuss this with anybody from Halliburton or any subsidiary of Halliburton. Nor does he comment on Halliburton's policies since he doesn't work there any more," she said.


The Business of War

Last year Kellogg, Brown & Root took in $13 billion in revenues, according to its latest annual report. Currently Kellogg, Brown & Root estimates it has $740 million in existing United States government contracts, approximately 37% of their global business, most of which are in addition to the LOGCAP deal.

For example, in mid-November 2001 Kellogg, Brown & Root was paid $2 million to reinforce the United States embassy in Tashkent, Uzbekistan, under contract with the State department. More recently Kellogg, Brown & Root was paid $16 million to go to Guantanamo Bay, Cuba, in March 2002 to build a 408-person prison for captured Taliban fighters under a contract with the U.S. Navy, according to Pentagon press releases.

That's by no means all -- Kellogg, Brown & Root employees can be found back home running support operations for the U.S. Army in Fort Knox, Kentucky to the U.S. Naval Base in El Centro, California.

And it is snapping up contracts with American allies also -- in September 2001, the company signed on to a $283 million project for Russia's Defense Threat Reduction Agency to eliminate liquid-fueled ICBMs missiles and their silos. In November 2001 Kellogg, Brown & Root won a $100 million order from the Philippines to convert the former ship repair facilities of the U.S. Navy in Subic Bay into a modern commercial port facility and in December it won a $420 million contract from the British Army to support a fleet of new mammoth tank transporters, according to company press releases.

Kellogg, Brown & Root is no stranger to the business of war. From 1962 to 1972 the Pentagon paid the company tens of millions of dollars to go to South Vietnam, where they built roads, landing strips, harbors, and military bases from the demilitarized zone to the Mekong delta. The company was one of the main contractors hired to construct the Diego Garcia airbase in the Indian Ocean, according to Pentagon military histories.

Running services at military camps is a relatively new chore for Kellogg, Brown & Root that began in 1992 when the Pentagon, then under Cheney's direction, paid the company $3.9 million to produce a classified report detailing how private companies (like itself) could help provide logistics for American troops in potential war zones around the world. (see related article) Later in 1992, the Pentagon gave the company an additional $5 million to update its report.

That same year, Kellogg, Brown & Root won its first five-year logistical support contract from the U.S. Army Corps of Engineers that would send them into work alongside G.I.s in places like Somalia, Haiti, Kosovo, Bosnia, and Saudi Arabia. The Balkan contract has been the most profitable for Kellogg, Brown & Root -- the General Accounting Office (GAO) estimates that the company made $2.2 billion in revenue during the U.S. military operations there building sewage systems, kitchens, and showers and even washing underwear for the 20,000 U.S. soldiers stationed there.


Kudos from the Army, Criticism from Outside

Army staff and their supporters have nothing but praise for Kellogg, Brown & Root. The Logistics Management Institute, a military think-tank, claims that LOGCAP contractors employed 24 percent fewer personnel and were 28 percent less expensive.

But other government agencies are more skeptical. "It is convenient to contract a lot of this work out. The problem is that the government doesn't do the best job of oversight," says Neil Curtin, director of operations and readiness issues at the defense capabilities and management team at the GAO.

Policy analysts say that it is simply a matter of time before something goes wrong. "Suppose a local Afghani contractor gets kidnapped or used for mischief? This has not been thought through at the policy level or opened up for public debate," notes Thomas Donnelly, deputy executive director of the Project for the New American Century in Washington DC.

In fact some of the cost cutting is managed by hiring local workers at lower wages than U.S. soldiers would be paid, a controversial practice that has its drawbacks. In 1994 United Nations troops armed with batons and tear gas had to be brought in to quell protests by workers that Kellogg, Brown & Root dismissed at the end of its engagement in Somalia. In Saudi Arabia, the army was alarmed when it discovered that locally contracted drivers were firing up portable propane tanks to cook meals out in the desert while transporting high explosive ordinance weapons, according to a student report published by the Air University at Maxwell Air Force base in Alabama.

Independent agencies are still skeptical. For example a February 1997 study by the GAO showed that an operation that was estimated at $191.6 million when presented to Congress in 1996 had ballooned to $461 and a half million a year later. Examples of overspending included flying in plywood from the United States at a cost of $85.98 per sheet (the cost in the United states was $14.06) and billing the Army to pay its employees income taxes in Hungary.

A subsequent GAO report, issued in September 2000, noted that army commanders in the Balkans were unable to keep track of contracts as they were typically rotated out after six months, erasing institutional memory. For example the GAO pointed out that many of the Kellogg, Brown & Root contract employees were idle most of the time despite the fact that offices were being cleaned four times a day. The GAO also faulted Kellogg, Brown & Root in its over-zealous purchase of power generators at great expense and employing far more firefighters than necessary.


Allegations of Fraud

In February this year Kellogg, Brown & Root paid out $2 million to settle a lawsuit with the Justice Department, which alleged that the company defrauded the government during the closure of the Fort Ord military base in Monterey, California in the mid-1990s.

The allegations in the case first surfaced several years ago when Dammen Gant Campbell, a former contracts manager for Kellogg, Brown & Root, turned whistle-blower and charged that between 1994 and 1998 the company fraudulently inflated project costs by misrepresenting the quantities, quality and types of materials required for 224 projects. Campbell said that the company submitted a detailed "contractors pricing proposal" from an Army manual containing fixed prices for some 30,000 line items.

Once the proposal was approved, the company submitted a more general "statement of work" which did not contain a detailed breakdown of items to be purchased. Then, according to Campbell, Kellogg, Brown & Root intentionally did not deliver many items listed in the original proposal. The company defends this practice by claiming that the "statement of work" was the legally binding document, not the original "contractors pricing proposal."

"Whether you characterize it as fraud or sharp business practices, the bottom line is the same, the government was not getting what it paid for, " explained Michael Hirst, who litigated the case for United States Attorney's office in Sacramento. "We alleged that they exploited the contracting process and increased their profits at the government's expense," Hirst added.

Meanwhile, Campbell's attorney, Dan Schrader, was pleased with the settlement but he wondered why the company was so eager to compromise. "If the company was indicted, I suspect that it might have been far more difficult for them to get new government contracts," he said.

Indeed the recently issued 2001 annual report says precisely that, in its notes on the settlement of the lawsuit: "Kellogg, Brown & Root's ability to perform further work for the U.S. government has not been impaired." Adds Hirst: "Kellogg, Brown & Root was very cooperative and eager to settle. They said they wanted to maintain a good relationship with the government."

Kellogg, Brown & Root will have a harder time milking the contract in Afghanistan because the government is now dispatching auditors from the Defense Contract Management Agency to monitor all purchases but it still stands to make at least a profit on whatever it can bill. The contract allows for the company to charge up to a 9% mark up on supplies.

And if the "war on terrorism" expands to the size of the Balkan operations that could add up to a few hundred million dollars in profits. In addition to the bases in Uzbekistan and Afghanistan, the Army recently started dispatching Force Provider units to the Manas airbase in Kyrgzstan, as recently as January 2002, to support up to 3,500 soldiers. Whether or not Kellogg, Brown & Root will follow them there, the Army has yet to tell the public.

At the time of writing Kellogg, Brown & Root kept its mouth shut about potential work in Afghanistan or Uzbekistan. "Kellogg, Brown & Root has not deployed nor been tasked to provide support in either country," said Zelma Branch, a spokesperson for the company, refusing to give any more details about the current LOGCAP contract. When provided with evidence that the company was indeed going to both countries, she emailed this response: "We can not elaborate at this time. Recommend you contact the Army."

The Pentagon, on the other hand, is considering considerably expanding the role of the private sector to do a variety of services from refueling fighter jets and bombers in mid-air to running the missile tracking systems.

Rumors are swirling that the Defense Security Cooperation Agency (DSCA) is considering hiring private contractors to train the new Afghan police and army, which it has done in the past in places like Croatia where it hired a private company to train the military.

David Des Roches, a DSCA spokesman, denied that the Pentagon had a proposal on the table at the moment but did not rule out the future possibility. "A lot of people have said, 'Ding ding ding, gravy train'. But in point of fact, it makes sense. They're probably better at doing these sorts of missions than anyone else I could think of," he said.

Bill Hartung of the World Policy Institute disagrees. "This is a company which has more experience with insider dealing and corruption than with efficiency, " he explained. "During the Second World War, there was a Senate committee on war profiteering. Personally I think we should set it up again and investigate Kellogg, Brown & Root."

Pratap Chatterjee is a freelance journalist based in Berkeley, California. In 1994-1995 he reported on the World Bank and the International Monetary Fund for Inter Press Service, a Third World News Service, in Washington D.C.