THE HALLIBURTON AGENDA
The Politics of Oil and Money
By Dan Briody
11
The Politics of Oil and Money
By Dan Briody
11
Fall from Grace
Bob Grace is not a political man. Since 1976 he has run GSM
Consulting, a small engineering consulting firm in Amarillo, Texas, advising oil companies on drilling strategies and
well-control methods. It’s not glamorous work, and it’s not particularly profitable. Grace runs a small office of 10 employees,
and still travels personally from site to site most days of the
month, plying his trade. He teaches in drilling schools, he
manages drilling projects, and works about a half dozen wild well control jobs a year. Bob Grace doesn’t care for politics
and doesn’t know much about them. He is simply a small business owner scraping by from year to year.
But in the wake of the first Gulf War, Bob Grace became
something more than a simple businessman. As he recalls his
time in Kuwait, leading an international team that extinguished more than 300 oil-well fires set by Saddam Hussein’s retreating troops, his even tone and Texas drawl tighten up a bit, betraying his pride and excitement of his time in the Middle
East. Grace worked for nearly nothing in Kuwait, but he is enormously proud of the work he did there, both from a professional and patriotic standpoint. He knows that rebuilding the
Kuwaiti oil fields was his crowning professional achievement,
but he also feels that it was one of the finest things he accomplished as a human being. “They said it would take five years to
put out those fires, but we did it in less than a year,” he told me
with thinly veiled pride.
But when talk of a U.S. invasion of Baghdad was dominating
the headlines as early as the fall of 2002, Bob Grace found
himself suddenly unappreciated by the same government that
had relied on his expertise 10 years earlier. Despite dozens of
phone calls to everyone from the Pentagon to his local representative, he could not extract even the littlest bit of information about how he should offer up his services again in Iraq.
He got form letters in response to his inquiries. He was dismissed and disregarded by government agencies. One decade
after he had worked nine straight months putting out mighty
fires in Kuwait, away from his family, for very little financial
gain, he was persona non grata.
As in the first conflict in the Persian Gulf, it was clear that
there was going to be a substantial need for oil infrastructure
repair after the war. What had changed between the first
Gulf War and the second that would leave Bob Grace out in
the cold? Put simply, everything. Halliburton, a company
that Grace had worked with hundreds of times over during
his career—usually as his subcontractor—now dominated
the war business. And the Bush/Cheney administration
was unrelentingly secretive. The combination of these two
facts led Grace to believe that there would be no coalition of businesses rebuilding Iraq’s infrastructure after the war. The
administration’s decision had already been made, six months
before the first bombs were dropped in Baghdad. Bob Grace
knows now what he couldn’t have known in the fall of 2002:
“We never had a chance.”
•••
In December 2001, with Cheney in the White House, Kellogg
Brown & Root won back the LOGCAP contract it had lost to
Dyncorp four years prior. During that four years, KBR held on
to the work in Bosnia through the Balkans Support Contract,
which, had it remained under the LOGCAP contract, would
have constituted the bulk of the revenue generated by LOGCAP
during those years. Instead, Dyncorp won a contract that was essentially gutted of its most lucrative work, and KBR never
skipped a beat. It was as if KBR had never lost LOGCAP; the
2001 re-compete just made it official again.
The company went to work on the War on Terrorism right
away, building one thousand detention cells in Guantanamo
Bay, Cuba, for terrorist suspects, at a cost of $52 million. The
work had to feel familiar to KBR. It had done the exact same
thing some 35 years ago in Vietnam. When troops were deployed to Afghanistan, so was Kellogg Brown & Root. They built
U.S. bases in Bagram and Kandahar for $157 million. As it had
done in the past, KBR had men on the ground before the first
troops even arrived in most locations. They readied the camps,
fed the troops, and hauled away the waste. And they did it like
the military would have done it: fast, efficient, and effective.
It was good work, solid revenues, but nothing like the
windfall the company had experienced in the Balkans. There were some gripes from the media about the company’s ties to
Cheney and the possibility of political favoritism, but overall
the contract was fairly competed and the work being done was
above average. What happened next opened the company up
to far more warranted scrutiny.
By October 2002, George Bush and Dick Cheney were beating the Iraq war drums in earnest. It was becoming increasingly clear that the United States was going to invade Iraq,
regardless of what Saddam Hussein did. On October 10, Bob
Grace received a letter from his congressman, Mac Thornberry
of the Thirteenth District in Texas, assuring him that “in the
event that Saddam Hussein leaves power . . . international partners will work to strengthen a changed Iraq as needed.” By December, a colleague of Grace’s, also interested in work in Iraq,
received a letter from Alan F. Estevez, Assistant Deputy Under
Secretary of Defense, indicating that “the Department is
aware of a broad range of well fire fighting capabilities and
techniques available. However, we believe it is too early to speculate what might happen in the event that war breaks out in the
region. If for any reason the U.S. Government is called upon to
suppress well fires through contract support, we would do so in
accordance with the Competition in Contracting Act and implementing regulations.”
But it wasn’t too early to speculate after all. In fact, KBR
had already developed a contingency plan in the event of oil well fires, assigned under a task order of LOGCAP. It’s not unusual for the Defense Department to keep war plans under
wraps prior to military action, so the idea that Grace was shut
out of the planning stages was not cause for concern. KBR had
obtained one of the highest levels of security clearance leading
up to the invasion, and for national security reasons, it was the
only company that was working on the contingency plan. But after the invasion began, only a handful of fires were set,
which KBR dealt with easily.
Far more difficult to justify was the follow-on contracts
that KBR won for repairing and rebuilding the aging Iraqi
oil infrastructure. What was a simple task order under
LOGCAP—developing a contingency plan for putting out oil well fires—morphed into an ever-growing contract called
Operation Restore Iraqi Oil. The work assigned to KBR under
RIO, a piece of business now approaching $2 billion, does not
fall under LOGCAP. The nature of work has nothing to do
with logistics or supporting army troops. But the contract for
restoring the Iraqi oil infrastructure was given to Halliburton, and it was not competitively bid (as Assistant Deputy
Under Secretary of Defense Estevez had promised Grace). It
was given to Halliburton out of convenience, because they
had developed the plan for fighting oil fires (all of which
were, by this time, extinguished).
Bob Faletti, a spokesperson with the Army Corps of Engineers, which is the department of the army that is overseeing
RIO, explained it to me this way. “When [KBR] finished with
that classified document [the oil-well fire contingency], there
were three companies that had the capabilities and the security clearances to do the work, because it was still classified. Of
the three companies, KBR was one of them. It made sense that
you could hire any of those companies and they would do a
good job, but you would spend two to four weeks getting the
other companies up to speed. So it made sense to award the
noncompetitive part of the contract to KBR, because you save
time and money.”
KBR got the contract because it wrote the plan, in much the
same way the company was awarded the original LOGCAP
contract because it designed it. The company was in the unique and highly coveted position of drawing up contracts
that only it could win. Bob Grace was livid. “The DoD in December assured us that everything would be competitively
bid,” he recalls. “When the news of the contract came out in
March, I contacted the DoD and told them that I felt the thing
was wrong. We were told that KBR got the work because they
were the only ones who could respond to the contingency plan.
That’s because they wrote it.”
The awarding of the RIO contract to KBR was in apparent violation of the same Code of Federal Regulations Guidelines
that should have prevented the company from winning the first
LOGCAP contract. But Faletti says that national security concerns overrode the Code of Federal Regulations in this case.
“When you compete you have to advertise it and that defeats
the classified nature of it, and you have to allow companies time
to compete for it,” says Faletti. Though the invasion of Iraq and
the possibility of there being oil-well fires was hardly a secret,
Faletti’s point would be valid if not for the fact that the official
end of war came on April 15, and as of the end of 2003, the contract for RIO was still in Halliburton’s hands, awaiting a competitive re-compete.
The saga of Operation RIO illustrates not only the danger of
sole-source contracts like LOGCAP, but the extent to which
Halliburton has embedded itself into the U.S. military machine.
Peter Singer, author of Corporate Warriors: The Rise of the Privatized Military Industry and a Fellow at the Brookings Institution,
told me that if Dyncorp had been in possession of LOGCAP at
the time of the Iraq War, the oil-well fire fighting plan probably
would have been developed by someone else, and Dyncorp certainly wouldn’t have been in a position to repair the damage to
the Iraqi oil infrastructure. But because it was KBR, exceptions were made. Says Singer, “You often hear the ‘we don’t have any
other choice’ excuse. But yes you do, you always have other
choices. You have the choice to compete it out, but if you keep
awarding it to the same company over and over, why would competitors bother. You can’t let the identity of the firm drive the
contracting process. The morphing of LOGCAP into something inappropriate in Iraq, where we took a military logistics
contract and then morphed it into fire fighting, then oil-well
repair, and then oil infrastructure repair, should not have happened. It should not have been added noncompetitively. They
clearly could have done that, they had the time to do it. All of
that could have been done, but they didn’t. Would we be in this
mess right now if Dyncorp still had that contract. No. And that
inappropriate morphing of the contract has turned out to be
worth over $2 billion to the firm.” And counting..
Ironically, the competitive re-bid process put the Army
Corps of Engineers in a bind. Halliburton is probably the company best suited for this kind of work, regardless of how they
obtained the contract. But given the public furor over the noncompetitive nature of the original RIO contract, a political
and business debate that has raged on for the better part of
2003, the Corps couldn’t possibly assign all of the work back to
KBR, which was among the competitors in the re-bid. Though
KBR has already made a small fortune in Iraq, it is likely to get
cut out of many future contracts. “That’s my nightmare . . . I’m
going to be wrong no matter what I decide,” says Faletti, who
managed the re-bid process, which ultimately awarded an additional $1.2 billion to KBR to continue repairing the southern
oil fields.
•••
Trying to prove that there was political favoritism involved
in the awarding of Iraq contracts to Halliburton is a little
like trying to build a murder case without the murder
weapon. In cases like this, there is rarely a smoking gun. As
Lyndon Johnson’s biographer Ronnie Dugger wrote when analyzing Brown & Root’s patronage of Johnson in the 1940s
and 1950s, skilled politicians like Dick Cheney would know
better than to leave traces of their influence lying around for
interested parties to find. When Johnson told reporters that
he had never recommended Brown & Root for a contract in
his life, he was lying. When he backed that statement up by
saying, “Nothing in the record will show it,” he was telling
the truth. It wasn’t for years afterward that the truth came
out, as often happens, after the consequences of such actions
were far past relevancy.
In the case of Cheney’s potential influence in the awarding
of contracts to Halliburton in the modern era, we need to look
instead at motive and opportunity. Why would Dick Cheney
want to help his former company by sending a massive reconstruction contract their way? Because he had sold his stock in
the company when the Bush team won the White House in
2000, it appears he had little personal financial incentive to
intervene. Instead, the reasons may be far more subtle, even
human, in nature.
After Cheney left the company to join the Bush campaign
in August 2000, Halliburton once again endured a stunning
decline of fortune. The main culprit was the 1998 merger
with Dresser that saddled the company with asbestos liabilities that ultimately led to the bankruptcy of two Halliburton
subsidiaries, including Kellogg Brown & Root. The drama
began in 1997, when Dick Cheney and then Dresser CEO William Bradford began the courtship that resulted in the
merger. Cheney and Bradford handled most of the early negotiations personally, and sealed the deal while quail hunting
in South Texas a month before the merger was announced.
At the time, Dresser was fighting off a legacy of asbestos
lawsuits stemming from a former subsidiary called HarbisonWalker Refractories Company, a division Dresser spun off
in 1992. Dresser’s products, like bricks and pipe coatings,
had contained asbestos, which resulted in a wave of litigation against the company during the 1990s. By 1998, as the
Halliburton-Dresser merger was entering its final phase, the
stakes were raised. A month before shareholders were to vote
on the merger, a letter from Harbison-Walker’s new parent
company, Global Industrial Technologies, to Dresser’s Bradford, indicated that the asbestos liability situation was worsening and the company would look to Dresser for help in
settling the claims. This information was not passed along to
shareholders prior to their vote to approve the merger. In
fact, Halliburton officials claimed that it was not shared with
them until after the merger had closed in September 1998, a
full five months after the letter was sent.
In presenting the risks of the merger to shareholders,
Cheney and the board failed to mention the potential impact
of the inherited asbestos liability, despite the fact that the
company would be adding 66,000 new claims to its books. By
this time, several dozen prominent American companies had
already resorted to bankruptcy protection as a result of asbestos litigation. Warranted or not, asbestos claims had become a major force in American business. It wasn’t until
March 1999 that Halliburton disclosed the asbestos situation
to its shareholders in its annual report, but even then the company dismissed the claims as immaterial to its ongoing
operations.
In the summer of 2001, a year after Cheney had left the
company, it became clear to the public that Harbison-Walker
was going bankrupt under the strain of the asbestos claims
and that litigants would be going after Halliburton’s deeper
pockets. Halliburton’s stock began to plummet, sliding from
$53.93 a share when Cheney cashed out to just $13.20 by
July 31, 2002. The number of asbestos claims against the company soared to more than 320,000 by the end of the year. The
struggle to resolve these claims dragged on for years. At one
point, it seemed that Halliburton might be saved by a piece of
legislation wending its way through Congress that would limit
corporate payouts in asbestos suits. Halliburton tried to extend the negotiations with its claimants presumably so that it
could take advantage of the legislation when it passed, but
the judge in the case wasn’t buying it. By December 2003, Halliburton was forced to file a prepackaged bankruptcy of its
Dresser II Industries and Kellogg Brown & Root subsidiaries,
and pay out an eye-popping $4.4 billion settlement to put the
asbestos issue behind them for good.
Financial analysts believe that one of two things occurred
when Halliburton merged with Dresser. Either Dick Cheney
was not aware of the extent of the asbestos liability he was saddling his company with through the merger, or he didn’t care.
“The job of the CEO is really in my mind to make sure that the
company stays out of trouble,” says one current Halliburton
analyst that declined to be identified. “I think either he wasn’t
getting the right information from his people or if he was getting the right information, he was ignoring it. It was no secret
at that time that Dresser had asbestos liability, but they didn’t properly assess it. Either he wasn’t doing his job, or if he was,
then they were willfully being blind to some facts they had in
front of them. If anyone should be pissed off, it should be the
shareholders of Halliburton who got saddled with asbestos liability under Cheney’s watch. If anybody is ultimately responsible, it has to be the CEO.”
A pattern from Cheney’s time as CEO begins to emerge in
light of these comments. According to public statements made
by Cheney:
• He was unaware of Dresser’s business in Iraq.
• He was unaware of the accounting changes that took
place at the company.
• And he was unaware of the massive asbestos liability that
plagued Halliburton after he left.
It’s rare, perhaps unprecedented, that a CEO has been so
insulated from his own company’s business. What’s even rarer
in these times, when CEO after CEO is indicted, sued, fired,
and generally reviled for everything from poor profitability to
corporate malfeasance, is that Halliburton shareholders (and
the media in general) have given Cheney a free pass.
Even if Cheney was unaware of these various problems, we
would have to assume that he was aware that as his company was
increasing its percentage of revenues from taxpayer dollars—
remember that Halliburton’s government business doubled
while Cheney was CEO—it had increased the number of tax sheltered subsidiaries in the Cayman Islands from 9 to 58 during Cheney’s watch. The move to protect Halliburton’s money
from U.S. tax collectors is estimated to cost the IRS $70 billion
a year. That’s one way to make government smaller.
Cheney’s legacy at Halliburton includes an ongoing SEC
investigation into the company’s accounting, a rash of criticism for its business in countries that sponsor terrorism, bribing an official in Nigeria, and an asbestos suit that devastated
the stock and resulted in bankruptcy of two prominent subsidiaries. It’s not hard to believe that Cheney feels responsible
for the state of his former company and the losses of its shareholders. Wouldn’t anyone in that position want to do something to help?
•••
The media firestorm that erupted over the RIO contracts
awarded to KBR put Vice President Dick Cheney in an awkward position. The question of whether Cheney might have
been in a position to influence the decision has been raised
repeatedly. The most commonly heard defense of Cheney is
that he has no financial ties to Halliburton, a sentiment expressed by Cheney himself on more than one occasion. This,
however, turns out not to be true.
In a September 14, 2003 interview on Meet the Press with Tim
Russert, Cheney had this to say about the allegations against
him, “Since I’ve left Halliburton to become George Bush’s
vice president, I’ve severed all my ties with the company, gotten rid of all my financial interests. I have no financial interest
in Halliburton of any kind and haven’t now for over three
years.” The Congressional Research Service, a nonpartisan
agency that investigates political issues at the request of
elected officials, says otherwise. Cheney has been receiving a
deferred salary from Halliburton in the years since he left the
company. In 2001, he received $205,298. In 2002, he took in $162,392. He is scheduled to receive similar payments through
2005 and has an insurance policy in place to protect the payments in the event that Halliburton should fold. In addition,
Cheney still holds 433,333 unexercised stock options in Halliburton, the profits from which he has agreed to donate to
charity. Ten days after Cheney denied any financial interest in
Halliburton on Meet the Press, the Congressional Research Service published a report indicating that “deferred salary or
compensation received from a private corporation in the reportable year is considered as among the ‘ties’ retained in or
‘linkages to former employers’ that may ‘represent a continuing financial interest in those employers, which make them
potential conflicts of interest.’ ”
The report goes on to say that “The general, underlying
principle of the conflict of interest laws adopted by Congress,
and of the regulations promulgated by the executive branch,
embodies the axiom, ‘that a public servant owes undivided loyalty to the Government,’ and that decisions, advice, and recommendations made by or given to the Government by its
officers be made in the public interest and not be tainted, even
unintentionally, with influence from private or personal financial interests.” The language in the report is unambiguous,
and it clearly states that Vice President Cheney’s relationship
with Halliburton constitutes not only a financial interest, but
a conflict of interest as well.
Faced with this understanding of the law, Cheney’s only remaining defense is that “as vice president, I have absolutely
no influence of, involvement of, knowledge of in any way,
shape, or form of contracts let by the Corps of Engineers or
anybody else in the federal government.” In theory, this is
true, and sounds an awful lot like the excuses he gave following Halliburton’s accounting and asbestos problems. But given
Cheney’s utter involvement in the planning stages of the Iraq
war, his history and contacts within the Department of Defense,
his appetite for information, and his attention to detail, it is
very hard to believe that he was unaware that Halliburton
would be playing a major role in the rebuilding of Iraq, a fact
that was known to others in the Pentagon as early as six months
prior to the invasion. Why more wasn’t done to at least give the
appearance of open competition in the awarding of Iraq contracts is anyone’s guess.
To make matters worse, Cheney is still in touch with the executives at Halliburton. One financial analyst that covers the
company but declined to be identified said “Cheney is very
loved within Halliburton. He’s seen as almost like the Godfather. Executives have told me, ‘yes, I still have contact with
Dick Cheney. He calls me up once in a while just to see how
things are going and find out what’s going on in the energy
business.’” Comments like these don’t bolster Cheney’s case
that he has severed all ties with the company. And phone calls
like the ones the financial analyst referred to certainly give
Cheney the opportunity to meddle in the contract award process, even if it’s just giving the company a heads-up on work
coming down the road, an act that would instantly skew the
playing field.
•••
What followed the awarding of the RIO work was nothing
short of a media and political firestorm. Newspapers, magazines, Internet sites, even the late night talk show hosts used
the Halliburton story as grist for everything from in-depth analysis to offhand one-liners to New Yorker cartoons. Halliburton once again became the symbol for everything that was
wrong with an unpopular war, much as it had 40 years prior in
Vietnam. But Halliburton became more than just a rallying
cry from the anti-war crowd, it became a political football
of epic proportions, a tangible, easy-to-understand one-word
denouncement of what Democrats had been trying to sell
the American voters for three years: the Bush administration
was too personally tied to corporate interests to make objective decisions.
The leader of the Democratic opposition to Halliburton is
Henry Waxman, a representative from California. Over the
course of 2003, Waxman fired off dozens of letters to everyone
from Secretary of Defense Donald Rumsfeld to Secretary of
the Army Les Browlee. He contacted the Office of Management and Budget, the Comptroller General, the U.S. Army
Corps of Engineers, and the Export-Import Bank. His main
concern was why the government was issuing no-bid contracts
to a company that had clear ties to Vice President Dick Cheney,
as well as a history of doing business with terrorist states, and a
habit of overcharging the government.
Though politically motivated, it all sounded reasonable
enough. The information Waxman sought involved taxpayer
money, and as such, should be publicly available. But what
Waxman found out was that it wasn’t just the Bob Graces of the
world that were being shut out of the Iraq contract process, it
was the Congress of the United States, and the American population in general. Mike Yeager, a spokesperson for Congressman Waxman, told me that at every turn, Waxman’s requests
for information were denied. “We hope to understand the contracting process and the practices that are going on and the problem that we’ve confronted with the administration is the
practice of reflexive secrecy, something you see it in all aspects of this administration. They have a standard of secrecy.
Members of Congress have an inherent right to information
on contracts, because the process is vulnerable to abuse, and
we have not been able to get the most basic information.”
Without the release of basic documents, even months after
the official end of hostilities in Iraq and long after national security concerns had abated, Congressman Waxman was left to
draw his own conclusions. Waxman’s office felt, like many others in Congress, that once the war had begun, the need for operational security surrounding the contract process should
have been lifted and competitive bidding should have begun.
They couldn’t understand why it hadn’t played out that way.
When I asked Yeager whether he felt that political favoritism
had played a role, he demurred, explaining that without the
information Waxman was seeking, he could only speculate.
“You can say that the contract was awarded on favorable terms.
You could not have dreamed up a better contract. Whether
somebody in the administration interfered in the process . . .”
Yeager paused, caught himself, and rephrased, “Unless someone has the evidence, no one should say that. But there is a history of political gaming.”
•••
In response to the attacks on his company, Halliburton CEO
Dave Lesar mounted a spirited public relations campaign
to control the damage. He wrote an op-ed piece in the Wall
Street Journal in October 2003 that defended his company’s actions under the guise of patriotism. Commenting on the RIO contract, he stated that “A lengthy bid process simply wasn’t
feasible,” and directed some of his comments directly at the
troops in Iraq—“you can count on us.” For a time, there seemed
to be some momentum behind defending Halliburton. The National Review said the claims against Halliburton were “All
smoke, no fire.” Steve Kelman, the head of the Office of Federal Procurement Policy under Clinton wrote an op-ed piece in
the Washington Post in early November defending the work of
the procurement officials involved and called the allegations
against Halliburton “absurd.” David Brooks, the conservative
columnist for the New York Times titled his November 11, 2003
defense of Halliburton “Cynics Without a Cause,” which relied
heavily on Kelman’s views published the week before. Indeed it
seemed the political pendulum had swung the other way.
But when I asked Steve Kelman, who is now a professor of
public management at Harvard, whether he thought there was
anything wrong with the Iraq contracts awarded to Halliburton, he had a lot to say. “It’s a fair criticism to say that the government needs to put more work into contract management,”
said Kelman, who said he worries “about very, very broad contracts that just say ‘battlefield support.’ ” Kelman feels that a
better way to dole out the LOGCAP contract would be to have
two companies own the contract, and compete on individual
task orders awarded under the one-umbrella contract. That
would solve the problem of expediency and build in some limited competition to keep the overall costs of the contract
down. He added, “The procurement policies of the Bush administration have not helped, we should focus more on managing the contract once it is awarded.”
Meanwhile, Halliburton wasn’t exactly backing up its public words with honorable actions. Over the summer, while the debate over Halliburton’s involvement in Iraq was reaching a
steady boil, the company revealed “improper payments of approximately $2.4 million” to a Nigerian tax authority in exchange for contracts to build a liquefied natural gas plant.
The Nigerian president, Olusegun Obasanjo immediately ordered an investigation into bribery charges, saying that “the
administration will not tolerate anything that undermines
the integrity of the government.”
By December, the French
magistrate, Reynaud van Ruymbeke was looking into the possibility of bringing charges against Dick Cheney for complicity in the bribery case and allegations that $243 million in
secret commissions were paid from the late 1990s to 2002—a
French company was involved in Halliburton’s Nigerian business. Since then, the United States Justice Department and
the SEC are looking into accusations that Halliburton made
$180 million in illegal payments to win other contracts in
Nigeria.
In addition, Waxman’s constant prodding had finally hit
its mark. For months during the fall of 2003, Waxman had
been doing the math in Iraq, and feared that Halliburton
was grossly overcharging the army for bringing much-needed
gasoline into Iraq. In December, the Pentagon agreed. A Department of Defense audit showed that Halliburton was
charging $2.27 a gallon for more than 56 million gallons
brought into Iraq, from Kuwait, since the war began. That
figure was $1.09 higher per gallon than the government was
paying for the gas itself from another contractor. The result
was a difference of $61 million. The company was losing
friends fast. Even President Bush couldn’t protect them now.
“If there is an overcharge, like we think there is, we expect
that money to be paid back,” he told reporters.
The company claimed that due to the constraints placed on it
by the U.S. Army, it was forced to use a Kuwaiti distributor that
charged higher rates. “KBR should be commended, not chastised,” said Randy Harl, KBR’s chief executive, in a conference
call with financial analysts on December 17. By February 2004,
Halliburton was under investigation by no fewer than four
government agencies, including the Department of Defense,
the SEC, the Department of Justice, and the General Accounting Office. The investigations span four different countries
(Afghanistan, Bosnia, Iraq, and Nigeria). And Halliburton had
already admitted that two employees took kickbacks of $6.3 million; they were also accused of overcharging for everything in
Iraq from gas to food. Yet despite all of this, the Army Corps of
Engineers could not find a better option than KBR when it
awarded the re-competed $1.2 billion contract for rebuilding
the oil infrastructure in southern Iraq.
Lost in all the political maneuvering surrounding Halliburton’s Iraq work is the fact that the military outsourcing business
of KBR is not terribly profitable for the company. Halliburton is
lucky if it makes pennies on the dollar from LOGCAP, a fact
that has led many in the Wall Street community to openly call
for KBR to be spun off, or somehow separated from the books
of its far more profitable parent company. It is, in many ways, a
business that no one else wants, and no one else can do. But the
structure of KBR’s contract in Iraq is, like it was in Vietnam, a
cost-plus award contract. This means that the more money the
company bills the American taxpayer, the more money it makes.
When the figures start to climb into the $2 billion range, even if
the margin is only 2 or 3 percent, the company is looking at a
profit of between $40 million to $60 million, which is not bad
for less than a year’s work.
In an election year, Halliburton is understandably a political lightning rod. Its current situation is unique in American
history. With its former CEO now the sitting vice president,
the company is in a position to profit from the decisions Dick
Cheney makes, or influences, while in office, even if he had no
direct involvement in the awarding of contracts. Many political
experts believe that Cheney led the case for war within the
White House, a fact that further inflames the ire of those concerned with the proliferation of the so-called Iron Triangle,
the confluence of politics, business, and the military.
Though some may be tempted to disregard the Halliburton
hot button because of its obvious political overtones, we
should all be reminded of whose money it is that is being
spent. It’s not just small business owners, like Bob Grace, that
lose out when contracts are awarded without competition, or
when management of those contracts is crippled by a dangerous and growing dependency on a single contractor. Taxpayers cringe at the thought of opening up their wallets every
April 15, but rarely think hard about how that money is being
spent and whether the ultimate destination of their taxes is directly improving their lives. Taxpayers deserve to feel good
about the money they give to their government, and in the
case of the $2 billion plus currently feeding into Halliburton’s coffers, the government has sullied that right. Even if
Halliburton is the best company for the job in Iraq, the appearance of the no-bid contract, coupled with the company’s
history of over-charging at the taxpayer’s expense, should
have raised a red flag in the administration that maybe giving
Dick Cheney’s old firm, which was in dire need of a cash infusion because of decisions made while Cheney was CEO, was
not such a good idea.
In a December 2003 New York Times story, an anonymous
member of the secret task force that awarded the RIO contract
to Halliburton was quoted as saying that as far back as September 2002 “I immediately understood there would be an issue
raised about the vice president’s former relationship with
KBR,” the official said, “so we took it up to the highest levels of
the administration, and the answer we got was, ‘Do what was
best for the mission and we’ll worry about the political’ fallout.”
Depending on which side of the political spectrum you reside, a
comment like that could be seen as courageous and patriotic.
But it can also be seen as a brazen act that blatantly disregarded public opinion and gave one of the most lucrative contracts in the history of war time to the vice president’s former
company. The no bid selection of Halliburton to perform the
billions of dollars of reconstruction work in Iraq to the exclusion of all others including “coalition” members has marred
the image of American democracy throughout the world, and
has proven to be a serious misstep in foreign policy on the
part of Bush and Cheney. Halliburton continues to be a hot
issue throughout the 2004 presidential campaign, and will no
doubt influence Bush’s reelection. As public servants Bush
and Cheney have demonstrated little regard for public opinion. How long can Halliburton and companies like it hide behind the cloak of patriotism, spending American tax dollars
with abandon at our country’s most vulnerable moment while
our economy is enduring one of its most weakened states of
the past decade? And what of the politicians who support its
behavior? In the coming months, Bush and Cheney will have
to answer for their actions and the ultimate judgment on
those actions will lie in the hands of the voters.
source and notes
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