Pentagon Defense Iraq Reconstruction Contracts Three generals and five top civilian officials defended their handling of reconstruction contracts in Iraq, although the Defense Department’s chief financial officer acknowledged “significant deficiencies” in pricing and subcontract management by the largest contractor, Halliburton Co. Testifying under oath before the House Government Reform Committee March 11, the eight officials said unanimously that they knew of no political pressure to award work to Halliburton, the company formerly headed by Vice President Cheney. A leading congressional critic of the Iraq contracts, Rep. Henry Waxman (D-CA), declared the procurement strategy is “profoundly flawed.” “Instead of promoting competition, the administration is giving companies monopolies over huge segments of Iraq,” he said. Halliburton subsidiary Kellogg Brown and Root is handling most of its work in Iraq under its LOGCAP contract, an indefinite delivery, indefinite quantity contract to provide support for U.S. troops worldwide. The Defense Contract Audit Agency released reports charging that KBR had failed to document many of the costs it claimed on a contract to provide food service for troops and had billed millions of dollars for meals that were not served. The agency said the weakness of KBR’s cost estimating system was “systemic,” disagreeing with the company’s assertion that it was a “unique situation.” The auditors said KBR overcharged by $30 million on the food service contract. Defense Department Comptroller Dov Zakheim told the committee that DOD auditors had rejected three bills submitted by KBR totaling more than $3 billion because the costs were not adequately documented. He said KBR resubmitted bills that were $700 million less, but later withdrew that estimate because of “pricing issues.” Zakheim said KBR suffered from “significant deficiencies” in estimating costs and in managing its subcontracts. On Jan. 13, the Defense Contract Audit Agency notified contracting officers of its investigation and urged them to “contact us” before entering into future negotiations with KBR. Rep. Waxman said the Army Corps of Engineers awarded a new $1.2 billion contract to KBR just three days later, without contacting the auditors. “It was as if the decision-makers simply didn’t care,” he said. But Zakheim countered, “An investigation is simply that. It doesn’t mean someone is guilty.” Waxman said auditors also found that KBR was importing gasoline from Kuwait to Iraq and charging twice as much as the Defense Energy Support Center’s costs for bringing in gasoline from Kuwait. Maj. Gen. Carl Strock of the Army Corps of Engineers, who was assigned to the Coalition Provisional Authority in Iraq when the gasoline contracts were awarded last May, soon after the Saddam Hussein regime was toppled, said long lines at gas stations had erupted into violence. One U.S. soldier was “assassinated” while trying to police the lines, he said. “We were told to get fuel moving now,” he testified. “Our contractor...said, “Give us more time. We can negotiate a better price.’ We said, ‘No. There is no time.’” The auditors accused KBR of overcharging for gasoline by $61 million. The company said the charges were proper. Zakheim noted that the alleged overcharges were discovered by DCAA auditors. In a statement, KBR president Randy Harl said the company “is working diligently to resolve disagreements about billing issues” with the Defense Department. No company officials testified at the hearing. Zakheim told the committee, “Contractor performance in Iraq has not been perfect, but it has not been terrible…We believe that contractor financial and internal control problems will resolve themselves.” He said auditors are examining other contractors in addition to KBR. Rep. Waxman also criticized the use of cost-plus contracts for work in Iraq, saying it gives contractors no incentive to hold down costs. But DCAA Director William Reed said cost-plus procurement “is appropriate,” because companies would not bid on a fixed-price contract in a war zone. In addition to the audit findings, KBR has disclosed that two of its employees may have violated the Anti-Kickback Act and published reports said the company owes subcontractors tens of millions of dollars in overdue payments. KBR’s work in Iraq could bring the company up to $18 billion. The Defense Department has asked the Justice Department to investigate alleged overcharges by KBR, The Wall Street Journal reported March 11.