Talking Points about Iraq Reconstruction Contracts and the Occupation:

March 31, 2003

Crony Contracting: The Patronage System

Q. What companies are getting the contracts to rebuild Iraq?

A. Although not all of the contracts have been released, you can find a list of major companies involved (with links to the actual contracts) on the web site of the Center for Public Integrity. Other contract information is available on the web site of the CPA Program Management Office.

A list of contracts awarded by the Iraq Relief and Reconstruction Fund (IRRF) is available in the Second Quarterly Report of the Reconstruction Fund.

A. The reconstruction contracting process began long before the war began, when Pentagon and U.S. AID officials began to meet with a small number of hand-picked companies. Overall, the contracting process was structured in secret, in a manner that ruled out any competition. Claims were made that no-bid contracts were justified for reasons of national security, but the situation has not improved significantly since combat operations stopped.

Because of their early advantage, two principal contractors (Halliburton and Bechtel) have managed most of the contracts ever since. For example, representatives from a company in the district of Rep. Jim Moran (D-VA) said they were having trouble making their case to get business from the Pentagon. "The indication they're getting is if they want the money they really have to go though Halliburton," Moran told reporters rom the Washington Post (10/2/03).

Representative Henry Waxman (D-Ca) has been following the issue closely since before the war began. To see Waxman's ongoing correspondence with the contracting agencies, click here.

Although the Army Corps of engineers repeatedly stated in the early stages of the reconstruction of Iraq's oil sector that the no-bid contract given out to Halliburton, worth up to $7 billion, was a short-term "bridge" contract that would only last until a new contract could be competitively bid, the Corps has indefinitely postponed opening up the work to other bidders. In effect, as Waxman put it in a letter (12/18/03) letter to Admiral Nash of the Program Management Office, "Halliburton has a monopoly on all oil work."

Waxman (D-CA) and Congressman John Dingell (D-MI) wrote a letter to Admiral Nash (12/18/03), director of the Iraq Program Management Office, which criticized the Administration for awarding "individual contractors monopolies over different sectors of the economy. Moreover, the Administration intends to award these monopolies without full and open competition, effectively limiting the opportunity to submit bids to a few hand-picked companies for each contract."

Q. At the start of the war, the Army Corps of Engineers and others asserted that Halliburton was the only company prepared to put out the oil well fires. Is that true?

A. No. Although officials from the army Corps of Engineers claimed that "no other contractor could satisfy mission requirements in the time available," CBS reported that other qualified companies had attempted to bid on the contracts, but were shut out of the process. Bob Grace, president of GSM Consulting, contacted the Pentagon to inquire about the firefighting contracts, and received a letter from the Department of Defense dated December 30, 2002 which stated that it was "too early to speculate what might happen in the event that war breaks out in the region." This was more than a month after the Secretary of Defense had already granted the firefighting contract to Halliburton.

Halliburton/KBR did not actually put the Iraq oil well fires out itself, but subcontracted the job to other companies: Boots & Coots International Well Control Inc., and Wild Well Control Inc.

(Sources: CBS News, Halliburton: All In The Family, April 27, 2003; On November 15, 2002 the Office of the Secretary of Defense awarded a classified Iraqi oil Field Plan work order to Halliburton, worth $1.8 million. (Work Order number T.O. 0031); Los Angeles Times, After The War: Getting Iraq's Oil Pumping Again, April 22, 2003)

Q. In an interview with Tim Russert on the Meet the Press (9/14/03) Vice President Cheney said, "I have absolutely no influence of, involvement of, knowledge of in any way, shape or form of contracts led by the Corps of Engineers or anybody else ' in the federal government..." Is this correct? Was Halliburton's advantage based on its connections to the Vice President?

A. According to the Wall Street Journal, Halliburton officials met with representatives of the Vice President's office in October 2002 to discuss how best to jump-start Iraq's oil industry after the war. (Thaddeus Herrick, "U.S. Wants to Work in Iraq," WSJ, 1/16/03)

Cheney's role has to be considered in light of his career history of moving through the revolving door from the government to Halliburton and back. As Secretary of Defense in 1992, Cheney was the architect of a long-term process that led the Defense Department to privatize a variety of military-related services. This decision has caused the military to increasingly rely upon a handpicked group of private military contractors, especially Halliburton.

In 1992, while he was Secretary of Defense, Cheney hired Kellogg Brown & Root (now a Halliburton subsidiary) to conduct a study on potential cost savings from the privatization of certain troop support services. After KBR returned a positive report, it won the first global logistics contract (LOGCAP). The LOGCAP hands much of the business of supporting US troops abroad to a single company. KBR/Halliburton won the latest LOGCAP contract (under which work orders continue to be issued in Iraq) in 2001.

For details on Cheney and Halliburton see this Cheney-Halliburton Chronology. Also see Jane Mayer's piece about Cheney and Halliburton in the New Yorker and Halliburton Watch.

Q. How much has Halliburton made on the Iraq contracts since the war began?

The latest figure is $7.2 billion total ($2.53 billion for the initial oil infrastructure contract, $4 billion for Iraq LOGCAP work for the military, and $1.2 billion for a new oil contract in southern Iraq).

Q. How much did Halliburton pay in taxes in 2002?

A. According to Halliburton spokesperson Wendy Hall, the company paid just $15 million in taxes in 2002. (Bob Herbert, "The Halliburton Shuffle," New York Times, 1/30/02)

Q. Is the work of the national energy strategy -- whose documents Cheney has tried to keep secret -- connected at all with the Iraq war?

A. The New Yorker reports the existence of a top-secret document, written by a high-level N.S.C. official, concerning Cheney's Energy Task Force. The document directed the N.S.C. staff to cooperate fully with the Energy Task Force as it considered the "melding" of two seemingly unrelated areas of policy: "the review of operational policies towards rogue states," such as Iraq, and "actions regarding the capture of new and existing oil and gas fields."

(See Jane Mayer, "Contract Sport: What did the Vice-President do for Halliburton?" The New Yorker, February 9, 2004.)

Among the few energy task force documents so far released are maps of Iraq's oil fields.

Also see Michael Klare, Bush-Cheney Energy Strategy: Procuring the Rest of the World's Oil

Q. On Meet the Press (9/14/03) Cheney claimed he has "no financial interest in Halliburton of any kind and haven't had now for over three years." Is that true?

A. No. In 2002, Cheney received $162,000 in deferred compensation from Halliburton, almost as much as he made as vice president. According to the Congressional Research Service, "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 makes them a potential conflict of interest."

See these two press releases from Senator Frank Lautenberg (D-NJ):
September 25, 2003 and September 16, 2003.

Q. Can you summarize the various contract scandals involving Halliburton's work in Iraq and the status of the enforcement proceedings and investigations?

A. Problems identified with Halliburton's activities in Iraq include:

** Federal prosecutors have opened a criminal probe of whether Halliburton overcharged the Pentagon for delivering gasoline to Iraq. A Defense Contract Audit Agency audit (draft) found that Halliburton overcharged by $61 million for fuel deliveries from Kuwait. The auditors also estimated that there would be an additional $10 million in overcharges for each month after September 30, 2003. Pentagon auditors say Halliburton did not fully justify spending more than $1 extra per gallon for gasoline delivered from Kuwait than gas it bought from Turkish companies. Halliburton says the higher price reflected charges by the Kuwaiti subcontractor that was the lowest bidder. Halliburton also says it came up with the idea of tapping the Turkish market and saved the government more than $100 million.

** A Pentagon audit concluded Halliburton charged millions for meals never served to troops. Halliburton has repaid $36 million and set aside an additional $141 million to reimburse the military for possible overcharges. According to a press release issued by Halliburton on March 19, Army Materiel Command and Halliburton have agreed to hold off on withholding 15 percent of payments to Halliburton - up to $300 million - for at least 30 days. The withholding of payments was originally proposed because of the alleged overcharging. Halliburton officials say problems might have occurred because the number of troops in and near Iraq often changed quickly and drastically.

** The Defense Department is probing allegations a Kuwaiti subcontractor paid kickbacks to two former Halliburton employees. The company says it repaid $6 million to the government after it discovered the scheme.

** There have been reports of problems with cost estimates and violations of federal regulations. The Defense Contract Audit Agency found so many additional faults with KBR's practices that it warned the Defense Contract Management Agency the company's estimates were unreliable. Halliburton attributes any problems to having to work quickly to establish services in a war zone.

For a chronology of problems with the Halliburton contracts, see this chronology on Congressman Henry Waxman's (D-CA) web site.

Q. The contracts have been described as a "patronage system." What other individuals with personal connections to the Bush administration have been involved in the contracting process?

Individuals with connections to the administration who are involved as contractors and consultants include Joe Allbaugh (a Bush/Cheney 2000 campaign manager and former head of FEMA under Bush), Ed Rogers and Lanny Griffith (two top aides to Bush's father), who together operate a company that provides security for corporate leaders visiting Iraq, and New Bridge Strategies, a company seeking distribution rights for major U.S. companies wishing to sell to Iraqis. (Thomas B. Edsall and Juliet Eilperin, "Lobbyists Set Sights on Money-Making Opportunities in Iraq," Washington Post, 10/2/03.)

Former Representative Bob Livingston (R-LA) runs a lobbying firm that represents well-placed Iraqi families seeking to form business alliances with U.S. and foreign companies interested in setting up operations in the country.

According to the Center for Public Integrity, already by October 2003, the 70 companies and individuals that had won $8 billion in contracts for work in postwar Iraq and Afghanistan over the previous two years had donated more money to the presidential campaigns of George W. Bush (a little over $500,000) than to any other politician.

Q. Is President Bush's family profiting from the reconstruction, and how?

A. Yes. According to the Financial Times, Neil Bush has been involved through his association with John Howland and Jamal Daniel of New Bridge Strategies - a company set up to help other contractors. The president's brother has written letters to push businesses established by Howland and Daniel, including Crest Investment Corporation, which in turn employs Bush as co-chairman. Bush receives $60,000 a year from Crest for working an average of three or four hours a week, according to the Times.

(Thomas Catan and Stephen Fidler, "Consultant on Iraq contracts employed president's brother Neil Bush," Financial Times, November 28, 2003; December 12, 2003)

First lady Laura Bush is also pushing the construction of a high-end hospital that critics say is less needed in Baghdad than basic health care services. The first lady told the Los Angeles Times that she knew the chief executive of the charity managing the proposal (Project Hope) -- John P. Howe III -- from his days as president of the University of Texas Health Science Center, when George W. Bush was the state's governor. The initial proposal called for "state-of-the-art tertiary pediatric" care, with a child cancer ward and centers for high-risk pregnancies, burn treatment and even plastic surgery. Rep. Jim Kolbe, an Arizona Republican who heads the House Appropriations subcommittee on foreign operations, has raised doubts about the necessity of such an expensive hospital in a country with little infrastructure. (T. Christian Miller and Johanna Neuman, "Politics Questioned in Hospital Plan; Proposed children's facility in Iraq is backed by first lady and linked to a Bush family friend," Los Angeles Times, February 24, 2004)

Q. Are there any restrictions on corporate lawbreakers receiving contracts? Should the government suspend/debar Halliburton or other contractors.

A. Federal contracting agencies are required to award contracts to "responsible sources." This requirement is implemented through a Federal Acquisition Regulation (FAR), which requires that government purchases be made from "responsible" contractors. (For details see, GAO-03-163, "Government Contracting: Adjudicated Violations of Certain Laws by Federal Contractors," November 2002).

But the Bush administration has no specific policy to implement this debarment sanction. As a result, companies with a record of lawbreaking continue to be eligible to receive contracts.

For example, in May 2003 the Pentagon disclosed that it had awarded WorldCom/MCI a $45 million contract to rebuild the wireless network in Baghdad, Iraq (no one seem to notice that the company is not a wireless carrier and therefore had no prior experience in building such a network). The very same day, the SEC and WorldCom/MCI announced a proposed penalty of $510 million to settle the biggest accounting fraud in history. (Christopher Stern, "MCI to Begin Rebuilding of Iraqi Phones," Washington Post, May 15, 2003.) (The contract was later suspended.)

For the lawbreaking backgrounds of various contractors see U.S. Labor Against the War; and "Band of Brothers" by Stephen Pizzo.

Another issue that no one seems to care about is the fact that some U.S. and especially Iraqi contractors or subcontractors have a history of doing business with Saddam Hussein. For example, the other prime contractor for the reconstruction of Iraq - Bechtel - did business with Saddam Hussein, despite well-documented evidence that he was using banned weapons. (See the Sustainable Energy and Economy Network; Click HERE for the L.A. Weekly's list of other companies that did business with Saddam.)

Suggested Experts:
William Hartung, World Policy Institute, (212)229-5808 ext.106, hartung@newschool.edu
Hon. Henry Waxman (House Government Reform Committee - Minority Office)
Prataap Chatterjee, Corpwatch, pchatterjee@igc.org, (510) 271-8080
Keith Ashdown,Taxpayers for Common Sense (202) 546-8500, x110; keith@taxpayer.net
Peter Singer, Brookings Institution
Rania Masri, Institute for Southern Studies, rania@nc.rr.com, (919) 419-8315
Mike Surrusco, Common Cause, (202) 833-1200, MSurrusco@CommonCause.org
Peter Ambler, Public Citizen, (202) pambler@citizen.org
Medea Benjamin, Occupation Watch
Scott Amey, Project on Government Oversight scott@pogo.org; (202) 347-1122

Related Web Sites:
Henry Waxman's web site.
Contract Watch
War Profiteers
Halliburton Watch
Center for Public Integrity

Related Books:
How Much Are You Making in the War Daddy? (A Quick and Dirty Guide to War Profiteering in the Bush Administration) by William Hartung
The Halliburton Agenda : The Politics of Oil and Money by Dan Briody
Corporate Warriors by Peter Singer
Cronies: Cronies: Oil, the Bushes, and the Rise of Texas, America's Superstate by Robert Bryce

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