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Iraq: Bidding for Contract Unfairly Favors Halliburton, Rivals Say

by Tom AbateSan Francisco Chronicle
August 8th, 2003

As the bidding deadline looms on two big contracts to repair Iraqi oil facilities, some competitors grumble privately that the process favors Halliburton, the Texas oil firm formerly headed by Vice President Dick Cheney, because the bidding specifications closely resemble what one of its divisions is currently doing in Iraq.

Before the Iraq war, Halliburton's KBR division, formerly known as Kellogg, Brown & Root, had been awarded a secret, no-bid contract worth up to $7 billion. But congressional pressure forced the Army Corps of Engineers to rescind most of that award and reopen the work to competition.

Now, the Army Corps is soliciting bids on two contracts for that work. One is to repair facilities in north and the other in southern Iraq. Each could be worth up to $500 million over the next few years. Those bids are due Aug. 14, and Army Corps officials have said they will make awards in October.

But disenchanted competitors -- who include some of the world's best-known engineering firms (though not San Francisco's Bechtel Corp.) -- say the very nature of the bidding process gives the inside track to Halliburton. That's because its KBR division is already doing some oil repair work in Iraq under an abridged version of the now-rescinded $7 billion secret contract.

One potential bidder, who attended a July 14 meeting in Dallas where Army Corps officials answered questions about the contracts, explained the basic complaint.

According to the source, who spoke on condition of anonymity, the two contracts up for bid cannot specify precisely what work needs to be done because the needs of the Iraqi oil industry have not yet been laid out.

Given this uncertainty about the scope and therefore, the cost of the work, each bidder is being asked to lay out its track record in a dozen broad categories. They include things from putting out oil well fires and assessing damage to maintaining pipelines and refineries and helping the Iraqis export their oil.

Prospective bidders are also being asked to show the Army Corps how they would handle two scenarios: putting out oil well fires and doing damage assessments on Iraqi facilities, according to the official bidding specifications.

But the source complained that the firefighting part of the process had no real bearing on the nature of the work, because burning wells are not a problem. More importantly, the source said, damage assessment is exactly what KBR is doing in Iraq right now.

"They have data and information the rest of us are not even capable of gathering," the source said. "Without having been there to see the facilities and know whether they have been bombed or looted, it's hard to put together a cohesive plan that represents reality."

During last month's briefing in Dallas, contractors asked Army Corps officials whether KBR, by virtue of being in Iraq and being already engaged in related tasks, had a conflict of interest that should prevent it from bidding.

The government's reply, provided in a transcript of the session, said officials had considered the issue but were not obliged to release their decision.

"They don't transcribe the chuckles" that followed the exchange, the source said.

More than 50 firms have expressed interest in the new contracts by registering to review the plans posted by Army Corps officials. They include some of the world's best-known oil and engineering firms, such as Halliburton Energy Services and KBR of Texas, Fluor Corp. and Parsons Engineering of Southern California, and URS Corp., the San Francisco firm partially owned by Richard Blum, husband of Sen. Dianne Feinstein, D-Calif.

But San Francisco's Bechtel, which already has a multimillion-dollar contract to reconstruct portions of Iraq's infrastructure, is apparently not bidding for the Army Corps contract.

In an e-mail, Bechtel spokesman Howard Menaker said the Army Corps has signaled its intent to accelerate the transfer of responsibility for oil repairs to Iraq's oil ministry.

"Given this plan," Menaker wrote, "Bechtel has decided to focus our efforts on future opportunities with the ministry."

Halliburton officials did not return calls.

E-mail Tom Abate at tabate@sfchronicle.com.





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