KBR linked to “the vast majority” of fraud in Iraq and Afghanistan

( – promoted by buhdydharma )

 

April Stephenson, the director of the Defense Contract Audit Agency (DCAA), told the bipartisan Commission on Wartime Contracting in Iraq and Afghanistan on Monday that Kellogg Brown & Root (KBR) is connected to “the vast majority” of alleged fraud cases in the Iraq and Afghanistan combat zones.

Plus, the majority of the $13 billion in “questioned” and “unsupported” bills to the Pentagon were submitted by KBR, reports the Washington Post. “KBR’s work accounts for 43 percent of the Pentagon’s audited Iraq contracting dollars”.

“I don’t think we’re aware of a program, contract or contractor that has had this number of suspensions or referrals,” Stephenson said…

Stephenson also revealed that some $553 million in payments have been suspended or blocked because contract officials questioned them or said they were invalid.

Since 2004, 32 cases of alleged bribery, overbilling, or other fraud have been sent to the inspector general for possible legal action.

In her opening statement (pdf), Stephenson noted that KBR was awarded these contracts by means that “did not follow the conventional procurement process” because of “the contingencies related to Operation Desert Shield, Desert Storm, Operation Iraqi Freedom and Iraq Reconstruction activities”.

The Bush administration was able to exploit a loophole in the law to enrich their corporate friends. Stephenson said:

The regulations are silent on how long an “unusual and compelling urgency” may exist. Our experience has disclosed the prime contractors rely on the concept of “unusual and compelling urgency” far too long; avoiding the requirement for full and open competition to satisfy contract requirements and more over as an excuse or justification for the lack of adequate and complete procurement files. Our experience has been prime contractors have relied on an argument of unusual and compelling urgency for many months or years after the war in Iraq started.

KBR was able to run up the bill before the terms and conditions of contract were even finalized.

Stephenson indicated there was little incentive for KBR to “produce adequate and supportable estimated costs and prices.” At one point, the government “estimated at $4.2 billion of which $1.8 billion was not supported by KBR”. Despite the auditors’ suspicions of war profiteering, “the Army determined it was not in the government’s best interest to implement the 15 percent withhold” that was standard when a contract was not in yet place. Stephenson said:

Throughout our audits, we determined that many of the purchase orders and subcontract files did not include adequate documentation to justify the reasonableness of the prices and costs billed to the government. In accordance with the acquisition regulations, prime contractors have the primary responsibility for ensuring subcontract prices are reasonable.

For example, there were various instances where KBR awarded purchase orders and subcontracts to other than the subcontractor with the lowest bid and KBR did not provide adequate justification for the award to the higher priced subcontractor. In cases where one subcontractor bid on the effort, we discovered numerous instances were KBR did not obtain sufficient cost or pricing data to evaluate the reasonableness of the subcontractor’s proposed prices.

DCAA 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. DCAA has also found that KBR would increase existing subcontract prices without performing adequate analyses of the proposed increases.

In conjunction with the commission hearing, Senators Claire McCaskill (D-MO) and Susan Collins (R-ME) complained in a letter to Defense War Secretary Robert Gates that “the Pentagon has done little to collect at least $100 million in overcharges paid in deals arranged by corrupt former” KBR officials, according to the NY Times. The Pentagon has delayed despite the former KBR officials having admitted to “much of the wrongdoing years ago”.

In the contracts handled by just one of those officials, Stephen Lowell Seamans, who pleaded guilty to bribery and conspiracy in March 2006, Pentagon auditors quickly found potential excess profits by a Kuwaiti subcontractor of $49.8 million, or 76 percent, “as a result of Mr. Seamans’s fraudulent activities,” the senators wrote.

Despite the suspected fraud and alleged crimes perpetrated by KBR, the Pentagon cannot seem to give up their relationship with the former Halliburton subsidiary.

The letter also said that the Army had almost completely failed to move away from the monopolistic nature of the logistics contract that has paid the contractor, now called KBR, $31.3 billion for logistics operations in Iraq, Kuwait and Afghanistan.

According to Pratap Chatterjee, an author and journalist, the Pentagon can do nothing without KBR. He writes, “KBR has grossed more than $25 billion since it won a 10-year contract in late 2001 to supply U.S. troops in combat situations around the world.”

KBR has left a dismal record of murder, rape, and bribery over the past five years and KBR employees are everywhere U.S. soldiers are deployed. But yet, the U.S. continues to do business with KBR.

The NY Times adds “the Army has generally upheld the bills the company has submitted to the military, even when the Pentagon’s own auditors have questioned the amounts.”

The senators’ letter concludes:

“Finally, I do not understand why the Defense Department has failed to take steps to debar all of the individuals and companies involved in defrauding the government and the taxpayer.”

Good observation. Why does the Pentagon continue to reward KBR with new contracts?

For her part, Stephenson presented the DCAA’s list of recommendations to Congress, including establishing timeframes for urgent and compelling contracting practices, demanding timely pricing of contracts, requiring adequate and complete contractor records, developing clear and detailed statements of work, and paying contractors based on their performance.

In addition, the DCAA recommended contractors actually be held accountable. And for past abuses, I’d prefer contractors like KBR and former government officials who gave them these contracts be held accountable in federal court.

 

^{Cross-posted at Daily Kos.}