Invitation to steal: War profiteering in Iraq
By William D Hartung
The heavy reliance on private contractors to do everything from serving meals
and doing laundry to protecting oil pipelines and interrogating prisoners has
been a major factor in the immense costs of the Iraq war. By one measure, there
may be more employees of private firms and their subcontractors on the ground
in Iraq than there are US military personnel.
One of the main rationales for using private companies to carry out functions
formerly done by uniformed military personnel - a practice that has been on the
rise since then-defense secretary Dick Cheney commissioned a study that led to
the contracting
out of all army logistics work to Halliburton in the 1990s - was that it would
save money. But in Iraq, the combination of greedy contractors and lax
government oversight has resulted in exorbitant costs, many of them for
projects that were never completed.
The first sign that something was terribly wrong with the contracting process
for the war was the awarding of a no-bid, cost-plus contract to Halliburton,
allegedly to pay the cost of putting out oil fires in Iraq. Congressman Henry
Waxman started asking questions about the contract after he learned that it
could be worth up to US$7 billion over a number of years. He rightly questioned
how a no-bid deal justified on the basis of potential short-term emergencies
could have such a long duration at such a high price. Only then was it revealed
that the contract also covered the task of operating Iraq's oil infrastructure.
Given the long-term nature of this larger task, Waxman argued that this aspect
of the work be taken away from Halliburton and subjected to competitive
bidding. It was several years before his recommendation was implemented, and
even then Halliburton received what at least one potential competitor - Bechtel
- viewed as an unfair advantage.
While few contracts matched the size of Halliburton's oil deal, the use of
cost-plus awards was widely emulated. A cost-plus award is virtually an
invitation to pad costs, as profits are a percentage of funds spent - in other
words, the more you spend, the more you make. This problem has been compounded
by a lack of auditors to scrutinize these contacts. For example, in one zone of
Iraq, only eight people were assigned to oversee contracts worth over $2.5
billion.
Halliburton's other major contract in Iraq is for the Logistics Civil
Augmentation Program (LOGCAP). Under this arrangement, Halliburton supplies
virtually all of the army's non-combat needs in the field, from building and
operating bases to repairing and maintaining combat vehicles. LOGCAP operates
on a variation of the cost-plus contracts, and it has exploited this
arrangement to the fullest.
Among the overcharges engaged in by the company have been the following:
overcharging by more than a dollar a gallon for fuel shipped into Iraq from
Kuwait; billing the government for three times as many meals as it actually
served the troops at several of the bases it runs; leasing SUVs for its
personnel at a cost of $7,000 per month; and charging $100 each for doing a bag
of laundry.
These are just a few examples among dozens in which Halliburton took advantage
of the "fog of war" to line its pockets. The company's attitude was summed up
by company whistleblower Henry Bunting, who indicated that when he raised
questions with his supervisor about Halliburton's lavish expenditures of
government money he was told "don't worry about it, it's cost-plus".
In all, Halliburton has been by far the greatest beneficiary of the Iraq war,
with war-related contracts exceeding $8 billion, several billion of which has
not been adequately accounted for. Although a number of changes were made in
response to the company's record of fraud and abuse - from taking away its fuel
supply contract to splitting the work for operating Iraq's oil infrastructure
into three parts - these measures were a classic case of too little, too late.
Reforms designed to prevent "another Halliburton" will be discussed below.
Large firms like Halliburton were not the only ones to exploit the war for
excess - and in some cases illegal - profits. One of the most notorious
examples involved Custer Battles, named after its founders, Scott Custer and
Michael Battles. When the two men went to Iraq in search of contracts, they had
no capital, no employees, and no experience in the security business. But they
did have a knack for marketing, billing themselves "Green Berets with MBAs".
Shortly after arriving in Iraq, Custer Battles received a lucrative contract to
provide security for the Baghdad airport. As an example of just how loose
controls were, one early payment to the company was made in the form of $2
million in shrink-wrapped $20 bills, transferred to the firm in exchange for a
handwritten receipt. A film of two Custer employees playing football with a
brick of the shrink-wrapped bills provided one of the most enduring images of
greed and corruption generated by the Iraq occupation contracting fiasco.
Even as rumors of poor performance on the airport security contract began to
circulate, Custer Battles received another major contract, this time for
delivering the new Iraqi currency to key points around the country. This effort
was characterized by shoddy working conditions, unpaid subcontractors, and the
use of broken-down trucks that could not carry out their mission.
Finally, after revelations by whistleblowers who had worked for the firm, the
extent of Custer Battles corruption was exposed. In addition to failing to
provide the security and transport services it was contracted to do, internal
company documents showed that it had routinely charged for at least twice the
value of services supplied by padding bills and funneling subcontracts to phony
companies. While all of this was going on, Mike Battles was paying himself $3
million as head of the company.
These were far from isolated incidents, but the extent of the problem might
never have been known without the creation of the Special Inspector General for
Iraq Reconstruction (SIGIR). IG Stuart Bowen and his staff did scores of audits
of every aspect of the reconstruction effort, from building schools to
restoring electric service to providing security for a wide range of projects
and activities. They discovered a pattern in which contract dollars were spent
out in full while only a fraction of the promised work had been completed.
While some of this gap can be accounted for by the violence and insecurity
rampant in significant parts of Iraq from early on in the occupation, this
cannot begin to account for the shoddy performance of major and minor
contractors alike.
To cite just one example of a company that was roundly criticized in SIGIR
audits, Parsons Corporation - the second-largest Iraq reconstruction contractor
after Halliburton - is worthy of mention. The company completely botched or
failed to deliver on hundreds of millions of dollars worth of contracts to
build health clinics, fire stations, prisons and a police academy. This
misconduct not only wasted dollars, it endangered the lives of US soldiers by
fostering resentment among Iraqi citizens.
The lack of accountability of contractors in Iraq has extended well beyond
financial malfeasance. Interrogators and translators from Titan Corp and CACI
Inc were allegedly involved in incidents of torture at the infamous Abu Ghraib
prison, but no employees of these firms were ever subjected to legal
proceedings. This is due to the fact that private contractors in Iraq exist in
a legal never-never land, subject neither to Iraqi law nor to the Uniform Code
of Military Justice (UCMJ).
The US Extraterritorial Justice Act is supposed to cover cases like this one
but it has almost never been utilized, due to the difficulty of having a
prosecutor based in America build a case regarding an incident or incidents
that may occur thousands of miles away.
The existence of security contractors who operate outside the military chain of
command also poses serious problems. For example, when four employees of the
private security firm Blackwater were killed and tortured by a mob in Falluijah
in April 2004, the US military felt compelled to strike hard at the city in a
punitive backlash that did much to accelerate the opposition to the US
occupation among ordinary Iraqis. If the job had been done by personnel within
the military chain of command, they might never have been deployed to that
location at that time, thereby preventing the first Fallujah crisis from ever
occurring.
Another circle of beneficiaries may be referred to as the "policy profiteers":
individuals who advocated for the war with Iraq at the same time that they
stood to gain from it. Chief among these were Bruce Jackson, R James Woolsey,
and Richard Perle. Jackson, a former vice president at the world’s largest
weapons contractor, Lockheed Martin, co-chaired the Committee for the
Liberation of Iraq, an advocacy group that closely coordinated its pro-war
messages with the Bush administration.
He had previously served as chair of the foreign policy subcommittee of the
Republican platform committee at the party’s 2000 convention. Both Woolsey and
Perle served as advisors to then secretary of defense Donald Rumsfeld as part
of the Defense Policy Board. Both men used their posts as official advisors to
the Pentagon to beat the drums for war, and both simultaneously ran investment
funds that were receiving money from major contractors like Boeing that have
profited mightily from the Iraq conflict. In addition, Woolsey is an executive
at Booz, Allen and Hamilton, a consulting firm that has given seminars on how
to get Iraq-related contracts.
Preventing war profiteering on the scale that has prevailed in Iraq will
require the implementation of thoroughgoing reforms:
Increasing the use of competitive bidding, even in cases in which only a few
contractors are deemed to be capable of doing the task at hand.
Better screening of bidders to rule out companies with no experience in the
relevant area of work (see profile of Custer Battles, above).
More auditors in the field from the outset of a conflict;
A new "Truman Committee" modeled on the effort led by then Senator Harry Truman
during World War II. The committee should have subpoena power, a robust
investigative staff, and the ability to forward major abuses to the relevant
criminal authorities,
These initial steps would go a long way towards preventing fraud and misconduct
in future conflicts.
William Hartung is director of the Arms and Security Project at the New
America Foundation. With Miriam Pemberton he edited the just-published Lessons
from Iraq: Avoiding the Next War (Paradigm Publishers) from which this essay was
taken.
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