IG: Iraq contractor abused rules to limit release of data

A major Iraq reconstruction supplier has abused contracting rules by routinely marking documents as "proprietary" to shield them from public disclosure, government auditors said Friday.

In a new report requested by the U.S. Embassy in Iraq (SIGIR-06-035), the Special Inspector General for Iraq Reconstruction found that KBR Inc., a subsidiary of Halliburton, has marked almost all documents produced under a contract for logistics support as "proprietary," limiting how government agencies can handle and share them.

"In effect, KBR has turned [Federal Acquisition Regulation] provisions designed to protect truly proprietary information … into a mechanism to prevent the government from releasing normally transparent information, thus potentially hindering competition and oversight," the IG found. Auditors said the practice also increases the burden on contracting staff members, who must go through a challenge process to remove the label in cases where they think it is misapplied.

The audit examined services provided under a cost-plus contract, in which the company is fully reimbursed for its expenses plus an additional percentage, to support military logistics at the embassy in Iraq. Inspectors found that "nearly all" the information produced by KBR was marked proprietary with a request that it be handled under the government designation "for official use only" and considered exempt from the Freedom of Information Act.

That information included reports filed on government forms, data collected according to specifications in the contract and other documents that did not contain cost or procedural information. Auditors concluded that the FAR provision cited in the standard clause on those documents, paragraph 3.104, addresses procurement information but is not relevant to the types of documentation on which it appeared.

Examples cited in the audit included a report on a daily head count of people using a dining facility required under the contract statement of work, and a report on the amount of fuel issued to various foreign embassies in Iraq.

Challenged on the practice by SIGIR and the Defense Contract Management Agency, KBR officials argued the company's labeling of the data was proper. "KBR has encountered situations in the past where extremely competition-sensitive data has found its way to the press and/or to the Internet. As a result, this data is being properly protected," company officials said in response to a DCMA request that inappropriate labels be removed.

In an e-mail response to questions on Monday, company spokeswoman Cathy Mann wrote, "The company has received acknowledgement and concurrence that the use of [FAR] proprietary data markings is not only encouraged, but required as part of the U.S. Economic Espionage Act as well as the U.S. Trade Secrets Act.… KBR has included proprietary markings on the majority of its data and property in support of its government contracts for the U.S. Army for at least the last decade."

According to the audit, a Defense official said steps have been taken to divide the work now being done under KBR's large contract into a series of smaller ones. He expressed concern that the transitions for that work could be hindered by KBR's labeling practice.

In pursuing their investigation, reviewers also encountered resistance from KBR in obtaining access to information underlying its documents, counter to contract provisions requiring disclosure of data for audit purposes, the report said. Company officials fought a request to obtain statistical information in a Microsoft Excel format rather than as a portable document format (PDF) file, the IG reported, and initially refused a contracting officer's instruction to make available a database containing fuel-related transactions.

On Monday, Republican and Democratic leaders of the Senate Homeland Security and Governmental Affairs Committee published a letter to the secretaries of Defense and State, asking them to resolve the matter. Sens. Susan Collins, R-Maine, the chairwoman, and ranking member Joseph Lieberman, D-Conn., also asked that the secretaries complete a review of materials previously marked "proprietary."