Wednesday, November 09, 2005

The Democracy Rising (DR) Interview: Jim Donahue of Halliburton Watch
Written by Administrator
Sunday, 13 March 2005

As we went to press with the HalliburtonWatch interview below, Congressman Henry Waxman revealed that Administration officials, acting at the request of Halliburton, redacted a Pentagon report to conceal more than $100 million in fuel overcharges from international auditors overseeing the Development Fund for Iraq. See: The ongoing saga of Halliburton contract abuse is sure to continue.

The U.S. corporate invasion of Iraq is being conducted through contractors who receive payment for providing services in Iraq. The leading company in this corporate invasion is Halliburton. Below is an interview between Democracy Rising's Kevin Zeese and Jim Donahue of Halliburton Watch. You can monitor the news and other activity related to Halliburton Watch at

DR: Why did you start Halliburton Watch and what is its purpose?
Donahue: The U.S. taxpayer is throwing a lot of money at Halliburton and its Kellogg, Brown & Root (KBR) subsidiary, which is the Army's number one contractor. When we started the website early last year, there weren't any websites devoted exclusively to the numerous reports on Halliburton's delinquent and possibly criminal behavior. We thought the Internet needed a central website that keeps track of all the news and informs people about the company's businesses.

DR: Doesn't federal law require bidding on contracts?
Donahue: Yes, federal law requires bidding on contracts, but there are exceptions. For example, no-bid contracts are allowed if only one company has the technical ability to do the work requested by the government. In the months prior to the invasion of Iraq, everybody thought Saddam Hussein would torch his oil fields, just as he did in Kuwait in 1991. So, the Army awarded a $7 billion no-bid contract to Halliburton's KBR subsidiary to extinguish the fires and rebuild Iraq's oil infrastructure. The Army and Halliburton justified the exclusion of competitors from bidding by claiming KBR was the only company with the technical expertise to extinguish oil fires.

But a Bush administration official later admitted that, prior to the invasion of Iraq, he determined that two other companies, Bechtel Group ands Fluor Corp., were also capable of handling oil fires. Bechtel executives were surprised to learn that the Pentagon claimed KBR had extinguished oil fires in Kuwait in 1991. In fact, it was Bechtel that managed the entire firefighting contract, proving that KBR is not uniquely qualified to handle oil fires. Also, Bechtel had subcontracted a lot of the firefighting work in Kuwait to smaller companies. So, there were certainly other companies with the technical know-how that could have bid on the contract awarded to KBR. Rep. Henry Waxman, who has investigated Halliburton's contracts, concluded that Bechtel was more qualified than KBR to handle the work.

DR: Is Halliburton receiving special treatment, if so, why?
Donahue: Yes. A senior contracting specialist in the Army said her superiors illegally excluded KBR's competitors from bidding on contracts. She said Army officials repeatedly violated regulations in order to give more business to KBR. At one point, she complained that KBR executives were present in a meeting of Army officials who were deliberating whether to give the company a contract. So, the line between KBR and the government has become blurred. It's as if KBR is a pseudo-government agency that isn't required to comply with contracting regulations.

Also, eight months prior to the invasion of Iraq, Pentagon auditors wrote a secret report warning that KBR's accounting system had "significant deficiencies" that could lead to defrauding the government or overcharging for services. The Bush administration ignored the report and awarded contracts to KBR. This is what I call "special treatment" for KBR. Since the invasion of Iraq, at least nine reports from Pentagon auditors have been released which have exposed numerous examples of overcharging and mishandling of the taxpayers' money by KBR. So, the pre-war warnings by military officials regarding KBR's incompetent handling of public money has come home to roost.

DR: Describe the history related to the emails uncovered during the presidential campaign that showed contact between the vice president and DoD? Also, describe Dick Cheney's past and current relationship with Halliburton.
Donahue: Vice President Cheney appeared on NBC's Meet the Press saying he had "absolutely no influence" over contracts awarded to KBR. But a few months later, an internal Pentagon email was uncovered showing Cheney did have at least some influence. The email, written by an employee with the Army, discussed awarding the no-bid Iraqi oil infrastructure contract to KBR. It said, "We anticipate no issues since action has been coordinated w VP's [Vice President's] office."

Also, Cheney's chief of staff, Lewis "Scooter" Libby, was briefed in October 2002 about the proposal to give the no-bid contract to KBR. Pentagon officials later admitted that Undersecretary of Defense Douglas Feith discussed the contract in advance with Cheney's office. So, it's untrue for Cheney to claim he had "absolutely no influence." But it's part of Cheney's character to misspeak, lie or bend the truth. In 2000, after earning $44 million over five years as Halliburton's CEO, he proudly proclaimed that the government had "nothing to do" with making him a wealthy man.

In fact, his main job as CEO for Halliburton was to secure government contracts for the company - contracts that help fund his $20 million pension. While CEO, he used his contacts acquired as a congressman and secretary of defense to increase the value of Halliburton's government business by nearly 100 percent, from $1.2 billion to $2.3 billion. Guaranteed and direct loans from government lenders increased over one thousand percent. In 2003, Cheney said, "I have no financial interest in Halliburton of any kind." But, that isn't exactly true. As vice president, Cheney continues to receive deferred salary of over $150,000 each year from Halliburton while maintaining 433,333 shares of unexercised stock options.

When confronted with the proof of his ongoing financial ties, Cheney responded by claiming his deferred salary and stock options are not actually a "financial interest" as defined by federal ethics standards, especially since the salary was earned in the 1990s and the stock options will be given to charity. This prompted the Congressional Research Service to issue a report which concluded Cheney's ongoing financial interest in Halliburton "is considered among the 'ties' ... to former employers' that may 'represent a continuing financial interest' in those employers which makes them potential conflicts of interest."

He also claimed that, while he was CEO, Halliburton had no business ties to Saddam Hussein's regime. But, this turned out to be untrue since two subsidiaries were making millions in revenue during the late 1990s. Cheney also tried to link Saddam Hussein to the Sept. 11 attacks. Three months after the attacks, he falsely claimed on NBC's Meet the Press that it was "confirmed" that one of the hijackers had met with Saddam Hussein's intelligence service in Prague. Then, in 2004, Cheney said "I have not suggested there's a connection between Iraq and 9/11." Nonetheless, eight days after making his false statement on Meet the Press and scaring the hell out of Americans, the Army awarded its troop logistics contract to Halliburton.

Today, the logistics contract is Halliburton's most lucrative and its most scandalous. Whenever you hear about overcharging the U.S. taxpayer for work in Iraq, it's most likely the logistics contract where the overcharges are taking place.And now we have the email exposing that Cheney wasn't exactly correct in claiming he had "absolutely no influence" over contracts awarded to KBR. Sometimes I think "Will the real Dick Cheney please stand up?!" It's not surprising that his claims about Iraq's weapons of mass destruction turned out to be untrue as well.

DR: What is the history of Halliburton regarding overcharging for services, oil, food?
Donahue: Halliburton is paid a fee by the military of one to three percent of its costs for all purchases it makes. So, the company earns a higher fee if it illegally inflates its costs. Pentagon auditors described Halliburton's billing system as "inadequate" and criticized the company for its inability to explain why KBR billed the government for $1.8 billion in work that was apparently never undertaken or completed. At the time of the audit, the $1.8 billion represented 43 percent of Halliburton's logistics expenditures in the Middle East.Auditors also determined that KBR billed the government for 36 percent more meals in the Middle East than was actually served to the troops. An internal KBR report said it had overcharged by 19 percent, not 36 percent. In one military camp, KBR billed the government for an average of 42,000 meals per day but served only 14,000 meals. The meal overcharges amounted to $186 million. The Army later renegotiated one of Halliburton's subcontracts for providing meals to the troops. By contracting directly with Halliburton's subcontractor, instead of going through Halliburton, the Army knocked 40 percent off the cost of the contract. Once the Pentagon dealt directly with the subcontractor, the cost per-meal dropped from about $5 to about $3, according to the GAO. This entire fiasco is just another example of how privatizing the military has been a complete disaster and very costly to U.S. taxpayers.

The Justice Department is conducting a criminal investigation over allegations that KBR overcharged the Pentagon by $61 million for importing gasoline into Iraq. Democrats in Congress say the overcharges are closer to $167 million. Investigators say KBR charged the Pentagon $2.64 per gallon of gasoline while competitors were importing gasoline for less than half that price. The Pentagon later fired KBR from the gasoline importation contract and assigned it to an office within the Pentagon known as the Defense Energy Support Center (DESC). The result was a 50 percent reduction in gasoline prices charged to U.S. taxpayers.

Auditors found that Halliburton overcharged the military by allowing unauthorized personnel to stay at a Hilton hotel in Kuwait City that was supposed to be used only by senior government officials. For example, Halliburton allowed an unauthorized person to live at the Kuwaiti Hilton for almost $700 a night. In all, Halliburton charged the government $2.85 million in unauthorized hotel costs while cheaper housing facilities were available. Auditors also complained that the company had charged $191,000 a year for laundry services by charging $100 per bag of laundry. KBR had also been charging $45 per case of soda. Whistle blowers describe instances where KBR billed the government for work even when employees sat around and did nothing all day. These employees spent weeks in Iraq with virtually nothing to do, but were instructed by Halliburton to bill the government for 12 hours per day for seven days of work. KBR's "backdoor" overcharge is the most creative.

Here's how it works: KBR is responsible for purchasing new trucks for the military. The military, in turn, pays a fee to KBR of one to three percent of the value of each newly purchased truck. So, the more trucks KBR purchases, the higher its fee will be. This means KBR has an incentive (conscious or unconscious) to find ways to force the military to buy more trucks. The best way to ensure the military buys more trucks is for KBR to abstain from routine maintenance on existing trucks. Former drivers said KBR supervisors declared simple maintenance like oil changes to be out of the question. This caused numerous engine problems, forcing disabled trucks off the road. Since the roads are constantly riddled with enemy fire, there is no time to repair disabled trucks -- even if the only problem is an expired oil filter or flat tire. So, the military orders the driver to destroy brand-new disabled trucks, usually by setting them on fire, to prevent the enemy from stealing the trucks.

Former KBR drivers reported seeing disabled KBR trucks -- or what was left of them -- abandoned on the side of the road on a daily basis. One former driver said his supervisor removed all the spare tires on his truck so that when he acquired a flat tire he was forced to permanently abandon it. Remember, those trucks cost $80,000 each! The Justice Department is also investigating Halliburton for possible over billing on government services work done in the Balkans from 1996 through 2000. The charges stem from a General Accounting Office report that found in 1997 that Halliburton billed the Army for questionable expenses, including charges of $85.98 per sheet of plywood that cost $14.06.

A follow-up report by the GAO in 2000 found inflated costs, including charges for cleaning government offices up to four times a day. A senior Army contracting specialist reported that KBR's work in the Balkans is "out of control," but the the Army altered documents in order to justify giving more Balkans work to KBR. The Army renewed KBR's contract for another five years. Pentagon auditors reported that KBR lost $18.6 million worth of government property in Iraq because of mismanagement. About a third of the government items under KBR's management, including trucks, computers and office furniture disappeared. The auditors blame mismanagement, not the extraordinary conditions of war.

DR: What is an open-ended contract? For example, I understand that Halliburton provides a wide range of services to overseas military without any specific amount designated for the service. Does this mean that the more foreign entanglements we have the wealthier Halliburton gets?

Donahue: Yeah, for example, as oil pipelines get blown up in Iraq, KBR is tasked with repairing them. It's a simple fact that more violence means more dollars for Halliburton. The company's contracts do not specify a definite or firm quantity of services or goods to be delivered. The military requests goods or services from KBR when it needs them. This gives more flexibility so that another contract doesn't need to be written every time a new contingency arises. Instead of writing a new contract, the military issues a new task order to KBR under an existing contract. But new task orders are closed to competitive bidding and are not announced to the public. Congress is not allowed to know about the work performed under new task orders or whether it was performed adequately. So, there's no accountability. It means contractors don't have an incentive to ensure costs are kept low. The military can continue issuing new task orders to KBR up to the value of the contract authorized by Congress. The GAO concluded that these types of contracts "were not attaining the level of competition Congress had initially envisioned."

DR: What is the history of efforts by DoD to audit Halliburton? I understand there have been three attempts to audit Halliburton but because of poor record keeping it has been impossible.

Donahue: During the presidential campaign, the Pentagon's auditors issued nine reports describing KBR's abuse of the taxpayers' money. While low-level Pentagon employees reported the corruption to their superiors, high-level Pentagon officials kept delaying any enforcement action against KBR. It seems they wanted to delay any action until after the presidential election in order to avoid embarrassing Cheney.The poor record keeping by Halliburton is deliberate in my view. Poor record keeping means the company can justify its overcharges more easily. A KBR whistleblower complained to Congress that the company uses a "manual" accounting system. She said the company could easily upgrade to what she called "real time data management." But a more modern accounting system would be more accurate and less prone to overcharging. A modern accounting system would also detect fraud more easily and KBR surely wouldn't want that. Also, under a manual, less sophisticated accounting system, fraud can more easily be called "inadvertent overcharging.

"Pentagon auditors concluded numerous times that KBR's expenses could not be verified under normal accounting procedures. The unverified expenses were piling-up during the presidential campaign, totaling almost $2 billion. So, the Army announced it would withhold 15 percent of future reimbursements until KBR verifies how, and to whom, the suspicious expenses were paid. It seemed like the right thing to do, especially in an election year. But a few hours later the decision was abruptly reversed and the Army announced it would give Halliburton "more time" to explain the expenses.

The abrupt reversal of the decision seemed suspicious to me. It's as if someone in a senior position at the Pentagon or in the Bush administration found out about the decision and ordered the reversal. During the presidential campaign, the Army had given KBR three deadline extensions to explain the suspicious expenses, but the deadlines quickly passed with no explanation that satisfied Pentagon auditors. The issue languished without a conclusion, like most of the ongoing government investigations initiated against Halliburton. I was floored when the Pentagon's Defense Contract Management Agency praised the company for its "effective and efficient" accounting system.

Not surprisingly, with the presidential campaign finally concluded, the Pentagon made its final determination in February and agreed to pay KBR $2 billion even though it's still unknown how the money was spent. The Pentagon could have suspended or banned KBR from future contracts for failing to explain how $2 billion of the taxpayers' money was spent. But KBR was not even hit with a slap on the wrist. Instead, the Army awarded KBR $9.4 million in bonus payments for its work in Kuwait and Afghanistan.

DR: Ralph Nader describes corruption in Iraq becoming "institutionalized" because companies are found guilty of violations of law, produce unauditable records but they continue to do business as usual. Do you agree that corruption is becoming insitutionalized?
Donahue: Yeah, when you look at the many blatant examples of corporate profiteering in Iraq, you can't help but realize corruption has become "institutionalized," especially since the Bush administration refuses to punish the Pentagon's most important contractor, KBR. Pentagon auditors issued nine reports criticizing KBR's handling of war contracts. In response, the Bush administration gave a $9 million bonus for the company's work in Kuwait and Afghanistan. That's a $1 million bonus for each of the nine auditing reports criticizing KBR! Halliburton has every reason to be smug about their control of White House policy, just as the other Bush/Cheney campaign funders do. Unfortunately, it will cause more -- not less -- corruption in the future and result in even greater waste of the taxpayers' money.

DR: Is there a corporate invasion of Iraq that is going on? What rules has the U.S. put in place to make this possible?
Donahue: Since much of the military has been privatized in the last 20 years, it's safe to say Iraq has been invaded primarily by corporate interests that make big money destroying Iraq, then rebuilding it. Privatizing the military started with President Reagan, but Cheney accelerated privatization when he was secretary of defense. It was Secretary Cheney who asked KBR to conduct a study -- which is still classified -- to determine whether privatizing military logistics would be good for the public interest. KBR got paid by the taxpayer to conduct that study, which -- not surprisingly -- concluded that privatizing logistics would be a great idea. After KBR made this conclusion, Secretary Cheney in turn awarded the first logistics contract to KBR, which later hired Cheney as CEO. The military logistics contract is KBR's most valuable contract today. This chronology of events between KBR and Cheney would be comical if it wasn't so unnecessarily costly and deadly.

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