KBR wartime support contract criticized at hearing

[David]

AP


WASHINGTON – A massive contract to support U.S. troops in Iraq and Afghanistan received a withering review Monday, as a special panel investigating waste and fraud in wartime spending was told of numerous deficiencies in the arrangement that has paid KBR Inc. nearly $32 billion since 2001.

Testifying before the bipartisan Wartime Contracting Commission, April Stephenson, head of the Defense Contract Audit Agency, said her agency has referred at least 16 reports since 2004 of suspected fraud or improper conduct stemming from the contract to government investigators.

Stephenson called the number of referrals "unprecedented" for a single military contract or program. But she declined to give details on those reports or name the sources of the alleged improprieties.

The agency has conducted dozens of audits on the KBR contract and has challenged about $4.7 billion in costs charged by the company, she said.

KBR is the primary contractor for the so-called LOGCAP III contract, but the Houston-based company has hired an extensive network of subcontractors to help it provide U.S. forces in Afghanistan, Iraq, and Kuwait with dining facilities, transportation, sanitation systems, warehouses and other critical services.

Armed with Stephenson's 66-page testimony, members of the commission pounded KBR, which was not invited to testify, for overcharging the government, and Army officials, who were invited, for failing to control contract costs.

Jeffrey Parsons, head of the Army Contracting Command, and Lee Thompson from the Army Materiel Command, were on the defensive throughout most of the hearing, which lasted more than three hours. They said the demands for KBR's services as the war in Iraq escalated stressed the contract and the accounting systems to manage it beyond planned capacities.

In a statement issued after the hearing began, KBR spokeswoman Heather Browne defended the company's record, saying the scope of the work has "changed significantly from what KBR was first expected to support."

To avoid relying on a single contractor, Parsons and Thompson said the Army rebid the contract two years ago. Now, under what's known as LOGCAP IV, KBR, along with DynCorp and Fluor, compete against one another. Costs should be reduced, they said, and government oversight increased.

But commission members said the Army continues to rely on KBR, defeating the purpose of expanding the number of contractors. They pointed to a letter sent Friday by two senators to Defense Secretary Robert Gates that says the Army hasn't done enough to make the logistics contracts more competitive.

Sens. Claire McCaskill, D-Mo., and Susan Collins, R-Maine, also called on the Defense Department to do more to reclaim $100 million worth of overcharges paid to KBR subcontractors.

McCaskill and Collins are, respectively, the chairwoman and ranking Republican on a contracting oversight subcommittee of the Senate Homeland Security and Governmental Affairs Committee.

In the letter to Gates, McCaskill and Collins also said that since the war in Iraq began in 2003, several KBR officials have been indicted or convicted of corruption-related charges involving LOGCAP subcontracts.

In her statement, Browne said that whenever discovered any wrongdoing by an employee, the company has quickly reported it to the government.

Stephenson cited KBR's heavy use of subcontractors as a trouble spot. There often was too little documentation "to justify the reasonableness of the prices and costs billed to the government," she said.

The contract audit agency "found many examples where KBR did not take aggressive action to obtain sufficient data from vendors that would have facilitated adequate analyses to ensure the lowest possible prices for the taxpayer," she said.

Commissioner Linda Gustitus asked why, given those and other problems, KBR was selected to be one of the three companies for LOGCAP IV.

"What does a contractor have to do to get the government to not contract with them?" she asked.

Parsons said he could understand the puzzlement. But during the selection process, there were no serious issues identified that would have disqualified KBR.

Commissioner Christopher Shays, a former Republican congressman from Connecticut, referred to Stephenson's lengthy testimony as a "litany of abuses." Shays also faulted the Army for not moving quickly enough to shift from KBR to the competitive arrangement.

"In essence, with this one contractor, we basically said that 'KBR is too big to fail,'" he said. "'We're still going to fund you.'"