Army will replace major Iraq contract
The Army intends to stop using an exclusive, multibillion-dollar contract with logistics and engineering firm Kellogg Brown & Root, which provides a variety of troop support work to U.S. military forces in Iraq and Kuwait. In its place, the Army will award a number of competitively bid contracts to keep those services going on a long-term basis, officials said this week.
The decision was announced in an Army memorandum first disclosed Tuesday by The Wall Street Journal. Defense Department officials and procurement experts have indicated that the Army's move isn't meant to penalize KBR, a subsidiary of Halliburton Co., which has come under criticism for its contract performance and for its political connections to the Bush administration. Vice President Dick Cheney is Halliburton's former chief executive.
Awarding new contracts signals a move away from the contingency-based environment of the early days of the Iraq war, when the military's future needs were less certain, officials indicated. KBR's contract, known as the Logistics Civil Augmentation Program, or LOGCAP, was designed to allow companies to follow military forces into war zones, where they would set up camps and provide food and sanitation services, among other types of support.
By shutting down LOGCAP for the Iraq War, the Army is moving to "sustainment contracts for support of U.S. military forces in Iraq," said Tina Ballard, who heads procurement policy for the Army. The Bush administration has set no deadline for pulling troops out of Iraq, and it's widely assumed that U.S. forces will remain in the country for years.
It was unclear Wednesday whether or not Halliburton would bid on the new contracts. Under LOGCAP, the Army and KBR negotiate prices, and the company is reimbursed and given an award fee of approximately 2 percent of its costs. The Army is reportedly considering a new arrangement, however, under which it would estimate those prices on its own. If KBR or any company could not stay within that price boundary, then it would be difficult to earn the fee, which is the way companies profit under the arrangement.
The Defense Department said in August that KBR hadn't provided justification for more than $1.8 billion of its work in Iraq and Kuwait. The Army could withhold payment on 15 percent of the company's work until KBR settles the accounting issues.
"As we look beyond the third-quarter, we will begin to see some of these award fees go before the [government's] review board," Halliburton spokeswoman Wendy Hall. "We have quite a few task orders that will be coming up for review later this year and into next year."
The Government Accountability Office criticized KBR's performance under LOGCAP during operations in the Balkans in the 1990s. GAO said the company was charging the government too much for basic supplies, such as lumber and electricity.
The Pentagon reportedly is considering awarding six more logistics contracts, completing the bidding process by the end of this year.
Army officials had said they planned to issue multiple contracts when the military environment in Iraq shifted to a sustaining operation. But officials also had come under political pressure, especially from some Democratic lawmakers, to open the postwar contracting process to more competition, and to hold KBR accountable for its billing process.
"It is no surprise that the Army is re-competing the contract; they have indicated for a long time that once they move into the sustainment mode they would likely compete elements of the current Halliburton/KBR contract, particularly as requirements become a bit more routinized," said Stan Soloway, president of the Professional Services Council, a Washington trade association, and a former deputy undersecretary of defense for acquisition.