On two separate issues, the New York Times and the Pentagon's top watchdog (pdf) slam KBR for overcharging and poor accounting.
The Times recounts the story of an Army official who was canned after he refused partial payments for $1 billion in questionable costs submitted by the Vice President Cheney-connected company. KBR is the largest contractor in Iraq and is responsible for Army logistics and oil infrastructure reconstruction. The Army would not allow payments to be cut to KBR, which the Army feared would lead to a reduction in services to troops -- essentially a work stoppage and a major reason why privatizing a vast extent of critical logistics support in a war zone is a dangerous and foolhardy idea. The Times reports:
The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.
Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”
But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR’s claims — approved most of the payments he had tried to block.
Army officials denied that Mr. Smith had been removed because of the dispute, but confirmed that they had reversed his decision, arguing that blocking the payments to KBR would have eroded basic services to troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services.
Under the helm of Chairman Henry Waxman, the House Oversight and Government Reform Committee has been on the heels of KBR and Halliburton for years. For example, Waxman made it public that the Defense Contract Audit Agency (DCAA) - to no avail - recommended (pdf; see page 19) that Army withhold partial payment to KBR until the logistics company straighted out its various internal controls for tracking costs.
Also, released this morning, the Defense Department Inspector General found (pdf) that KBR also overcharged in a report on Navy contracts on support services in the aftermath of Hurricane Katrina. According to Bloomberg News, which was the first to report on the IG audit:
KBR overcharged the U.S. Navy for providing meals to workers and service personnel in the aftermath of Hurricane Katrina, according to a Pentagon audit.
The Pentagon Inspector General said he could find no documentation in Navy contracting files to back up KBR claims it paid fair and reasonable prices to subcontractors that served meals in New Orleans.
"The prices KBR agreed to pay were greatly inflated," the 86-page audit said.
"The Navy paid approximately $4.1 million for meals and services we calculate should have cost $1.7 million, more than a $2.3 million difference," said the audit, signed by Assistant Inspector General for Acquisition Management Richard Jolliffe.
KBR paid for 227,500 meals over a 34-day period, yet the subcontractors served only 113,654, fewer than half, and the remaining meals were discarded, the audit said. It recommended the Navy demand a refund from KBR of at least $1.4 million.
The overcharges were one element of mismanagement by Houston-based KBR, of three Navy contracts valued at $229 million for cleanup and restoration of Navy facilities damaged after Hurricane Ivan in 2004 and Katrina in 2005, the audit said.
Altogether, the audit requested that the Navy seek refunds of at least $8.5 million for "inappropriate" payments to KBR.
-- Nick Schwellenbach
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