FT: Halliburton is the tip of the iceberg

[Michael Pollak <mpollak@xxxxxxxxx>]

[There's nothing new about boondoggles in military procurement.  But
there's a systematic reason why it's 20 times worse now than it's ever
been before: measured by personnel, the amount of work that is outsourced
is 10 times higher than it was at the time of the first Gulf war
(according to Frida Berrigan's Feb 26th interview on Doug's show,
http://www.leftbusinessobserver.com/Radio.html).  And during the same
time, the military audit departments have been cut in half (and budgeting
and accounting -- which writes the specs -- by two-thirds).  Since
everything in Iraq is a cost-plus contract, the initial bids have no
binding force, and auditors are the only thing keeping people even
minimally honest.  And as Henry Bunting, late of Halliburton, famously put
it, in 4 months on the job, he never saw an auditor in Iraq.]

Financial Times; Mar 30, 2004
Focus on Halliburton obscures deeper problems
By Joshua Chaffin

Halliburton, the Houston-based oilfield services company, has served as an
inviting target for critics of the frustrating effort to rebuild postwar
Iraq.

That seems logical given that Halliburton boasts $18bn in Iraq contracts
-- the biggest haul of any company -- and a former chief executive, Dick
Cheney, who now sits in the White House as vice-president.

But the obsession with Halliburton might be obscuring a larger problem
with the US-led rebuilding effort: lack of government oversight.

As Congress and Pentagon investigators delve into the often opaque
contracting process, they are revealing a scarcity of auditors supervising
the private companies retained to carry out vast projects such as
restoring Iraq's oil sector or rehabilitating its schools.

The latest indication comes in a report last week from the Pentagon's
inspector-general, which found there was "little or no government
surveillance" on 13 of 24 rebuilding contracts awarded at the outset of
the war and that contacting officers failed to support price estimates on
nearly all those assignments.

The inspector-general's report followed a draft of a General Accounting
Office review, which reached similar conclusions.

It noted, for example, that a single Halliburton contract extension worth
$587m was renewed in 10 minutes -- with just six pages of documentation.

Both of these buttress the testimony of Henry Bunting, a former
Halliburton procurement officer, who told a Democratic party committee in
February that he did not encounter a single auditor in four months working
for the company in Kuwait.

During that time, according to Mr Bunting, Halliburton employees spent
recklessly on items from car rentals to gym towels -- all of which was
ultimately paid for by the US government.

Halliburton is not the only company in Iraq that has fallen foul of the
Pentagon. Dov Zakheim, the Pentagon comptroller, told Congress on March 11
that Fluor Federal Systems, Perini Corporation and the Washington
International Group also had cost issues.

"This is clearly pervasive in Iraq," said Steve Schooner, a federal
contracting expert at the George Washington University school of law.
"Everybody over there has got the same problems."

The Iraq contracts require rigorous auditing, according to procurement
experts, because they were often hastily drawn, alloting hundreds of
millions of dollars to prime contractors to tackle dozens of fluid
projects.

The "cost-plus" nature of the contracts also calls for high vigilance.
Under the agreements, companies are guaranteed a set profit on top of
their costs.

Few contractors would be willing to promise a set price for speculative
work they will be performing in a war zone, say "cost-plus" advocates. But
the trade-off is that such arrangements mean companies have little
incentive to rein in spending.

The Pentagon has acknowledged that its normal contracting procedures were
strained by the rush to war. The criminal investigation into fuel imports
and other Iraq contracts is evidence, they claim, that their auditors are
now on the case.

Mr Zakheim told Congress that the Defence Contract Audit Agency's Iraq
branch office would grow from 25 to 31 by the end of May.

There may also be plans to expand the work in Iraq of a related agency,
the Defence Contract Management Agency.

But critics such as Mr Schooner believe that the problem has deeper roots.
Since the 1990s -- when both parties promised to shrink the federal
government -- the Pentagon has pushed to outsource tasks that do not
involve direct combat.

However, at the same time that it has entrusted ever greater amounts of
work to private companies such as Halliburton, it has also reduced the
trained personnel to oversee them.

>From 1990 to 1999, for example, the defence department's accounting and
budget personnel fell from 17,504 to 6,432. During the same time, the
ranks of the defence contract audit agency, the Pentagon's auditing
branch, fell from 7,030 to 3,958.

"When they were down-sizing the government, they whacked the acquisition
workforce even harder," Mr Schooner explained.

That decision may now be plaguing the rebuilding effort in Iraq.