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US contractor criticized for waste, fraud in Iraq

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US contractor criticized for waste, fraud in Iraq

Published Date: August 13, 2009
WASHINGTON: An independent panel examining waste and fraud in wartime spending criticized contracting giant KBR Inc on Tuesday for resisting government oversight and failing to cut costs on support work in Iraq. At a hearing held by the Commission on Wartime Contracting, KBR defended its performance, telling the panel the company had been under heavy pressure to meet urgent demands of military commanders.

KBR's internal accounting and cost estimating systems have been inadequate since 2005, commissioners said, which has led to questionable billings and drawn-out arguments with federal auditors about hundreds of millions of dollars in charges. Commissioner Dov Zakheim said KBR's top managers meet regularly with the Defense Contract Audit Agency. Yet the company has been unable to come up with solutions to satisfy the agency. By comparison, other large contractors, such as Dyncorp International, seem to work
out their problems quickly, he said. "Are you guys stonewalling?" asked Zakheim, a former Pentagon comptroller.

William Walter, KBR's senior vice president for government compliance, said the company was incurring expenses for the work it was doing in Iraq at the same time auditors were poring over the company's cost projections, a situation prone to confusion and disagreements. "It's a vicious cycle that we were stuck in," Walter said. He described the disagreements over contract charges as "differences of judgments." KBR is the primary support contractor in Iraq, providing troops with essential services, includin
g housing, meals, mail delivery and laundry. The company has been paid more than $32 billion since 2001.

It formerly was an affiliate of the oil-services conglomerate Halliburton and its ex-CEO, which once was headed by Dick Cheney, vice president to former President George W. Bush. In a prior report, the commission said billions of dollars of that amount was wasted due to poorly defined work orders, inadequate oversight and contractor inefficiencies. Commissioner Charles Tiefer said KBR is keeping more employees in Iraq than it should in order to keep charging the government for work even as US forces are
drawing down.

In late January, Army Gen Ray Odierno, the top US commander in Iraq, ordered military units to begin cutting US contractors by 5 percent each quarter and to hire Iraqis instead. Tiefer, a professor of government contracting at the University of Baltimore Law School, said figures he has compiled show KBR's personnel rates in Iraq are declining more slowly than others. "They're slowrolling the drawdown," he said. Walter said much work remains to be done in Iraq even as the US presence is decreasing. That in
cludes shutting down bases and housing units.

Commissioners also faulted KBR for building a $30 million dining facility at a US base in Iraq shortly after the company had renovated the base's existing mess hall at a cost of $3.36 million. The panel wanted to know if KBR tried to tell the military the new facility was unnecessary, especially with American forces scheduled to be out of Iraq by the end of 2011. Walter said the renovation work and the new facility were separate contracts from two different Army agencies, evidence of the need for governme
nt to speak with one voice.

And nobody from KBR went to anybody senior in the Army and said, 'What in God's name are you doing?"' Zakheim asked. Walter said KBR does what it is told to do by the customer. Commissioner Linda Gustitus asked Walter whether the company has been criticized by government officials for not "proactively seeking cost savings." Walter did not answer immediately. "The answer is yes, by the way," Gustitus said. - AP

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