Auditors find use of Iraq contracts is a mixed bag

Defense Department officials generally adhered to contracting rules and guidelines when awarding new contracts for the war in Iraq and subsequent reconstruction. However, they often failed to follow the same procedures when awarding task orders on existing contracts, reflecting a systematic problem with the award, management and oversight of task orders that has been highlighted by federal overseers since 1992.

That was the assessment of a General Accounting Office report (04-605) released Monday that found a mixed bag when it comes to the management of procurement operations supporting the war and reconstruction.

On Tuesday, Comptroller General David Walker told members of the House Government Reform Committee that GAO was satisfied with Defense contracting organizations' decisions to limit competition and sometimes make sole-source awards for Iraq-related work. The exigencies of war demanded it, and contracting officials justifiably used regulatory provisions that allow the government to bypass normal competition requirements in order to award contracts more quickly, Walker said.

But when it came to task-order awards on existing contracts, GAO found more systemic misuse, Walker testified. In particular, orders were placed for work outside the scope of their contracts. For instance, longtime intelligence contractor SAIC was hired to set up media organizations in Iraq using a contract for professional management services, the GAO reported. The report also says that an SAIC employee was hired as an expert for work outside the provisions of the contract. The Coalition Provisional Authority Inspector General has found the employee, Terry Sullivan, was hired as an intelligence analyst and technical adviser. The contract used for the SAIC work, known as MOBIS, is managed by the General Services Administration and covers services such as management consulting.

Walker also pointed to a task order to oil services firm Halliburton in 2002, before the U.S.-led invasion of Iraq. That order was for planning about how to extinguish Iraqi oil-well fires and repair the oil infrastructure in the event of war. However, it was placed under an Army logistics contract, LOGCAP, that GAO believed wasn't appropriate for that type of preparatory planning.

Defense officials believed that by awarding the planning order to Halliburton, the company would be "uniquely qualified" to execute the plan and repair the oil fields, Walker said. In March 2003, Halliburton won a new sole-source contract worth up to $7 billion to perform that work. GAO reported that Defense officials had determined the actual repair work was outside the provisions of LOGCAP.

GAO also found problems with training of contracting personnel. For instance, the first contracting officers deployed overseas to manage LOGCAP work were well trained in how to use the contract. But a replacement team of reservists had received only two weeks of training.

GAO also found problems with planning cost estimates and defining the services to be performed, both issues identified as problem areas when LOGCAP has been used in war zones, such as Somalia and the Balkans. Planning is essential to ensuring that the government isn't overcharged for services and that contractors are monitored in the field, Walker said. In one instance, on a contract to provide troop support such as food and housing in Iraq, a plan wasn't developed until May 2003, two months after the war began, Walker noted. This plan wasn't comprehensive, however, because the contractor, Halliburton subsidiary Kellogg Brown & Root, wasn't involved, Walker said.

The Defense Contract Audit Agency has found that KBR was unable to support the reasonableness of its prices for dining services for troops. Costs to KBR subcontractors exceeded $800 million, testified William Reed, the audit agency's director. Reed said KBR found that, generally, subcontractors were charging per-person meal rates that exceeded the number of soldiers actually served by at least 19 percent. KBR couldn't support the billing discrepancies, but the company "asserts that the excess meals are allowable, primarily because the various task orders under the LOGCAP contract do not specify a specific billing methodology," Reed said.

Walker said that management of Defense Department contracts has been on GAO's "high-risk list" since 1992. While he and others painted a somber picture of the state of Iraq contracting, a panel of senior Defense and Army officials said that the process has improved in the past year. While acknowledging that corners may have been cut initially, the officials said the need to award contracts quickly and provide support to U.S. troops should be taken into consideration when measuring how well the procurement system has fared.

Deidre Lee, the Pentagon's chief procurement executive, said that the contracting process has "matured" as the Pentagon's knowledge of the environment in Iraq has expanded since the March 2003 invasion.