Contract figures show Halliburton's startling growth

By Katherine McIntire Peters

Halliburton, the giant services firm formerly run by Vice President Dick Cheney, saw a sixfold increase in earnings from contracts with the Defense Department last year, making the Houston-based company the nation's seventh largest defense contractor.

Halliburton received Pentagon contracts worth $491 million in 2002; that figure shot up to $3.1 billion in 2003.

Data on the top 200 federal contractors was compiled for Government Executive by Eagle Eye Publishers Inc. of Fairfax, Va., from information collected by the General Services Administration. A full list of top contractors will be published in the magazine's Aug. 15 issue.

The bulk of Halliburton's 2003 federal revenues derived from two sole-source contracts let by the Army to Halliburton's engineering and construction division, Kellogg, Brown and Root, before the invasion of Iraq. Under one contract, the Logistics Civil Augmentation Program, which ultimately could be worth up to $5.6 billion, the company provides logistical support to troops, such as cooking, laundry, housing and other services. The other agreement, known as the RIO contract, worth $2.5 billion, was to fight oil-field fires that U.S. commanders anticipated before the start of the war and to restore Iraq's oil infrastructure during reconstruction.

Both contracts have been controversial. David Walker, the head of the Government Accountability Office, told the House Government Reform Committee in June that a GAO audit showed that the LOGCAP contract was poorly managed.

In particular, Walker criticized a $1.9 million task order issued under the auspices of the contract by the Army Field Support Command in November 2002. The task order directed KBR to develop a plan to repair and restore Iraq's oil infrastructure should Iraqi forces damage or destroy it. GAO determined that the task order fell outside the scope of the LOGCAP contract and should not have been issued. The Army Corps of Engineers awarded Kellogg, Brown and Root the RIO contract four months later on the basis of work performed under the questionable task order.

Maj. Gen. Carl Strock, commander of the Army Corps, said KBR's plan, developed under the LOGCAP task order, gave the company a significant edge in winning the RIO contract. "We didn't know when the war was going to start, and we were not prepared to fight [oil] fires. KBR had done a contingency report, and they were familiar with the scene," Strock says. GAO found that the Corps properly justified the sole-source contract to KBR to restore Iraq's oil infrastructure.

Democrats on the House Government Reform Committee have been highly critical of Halliburton's performance in Iraq under both contracts. California Rep. Henry Waxman was especially critical of the high prices Halliburton charged to import gasoline into Iraq following the war compared with prices more recently charged by the Defense Energy Support Center, the organization now responsible for the importing gasoline into the country.

Strock says that the early days of occupation were particularly chaotic, and that Halliburton's charges should be considered in that context.

"The lines for fuel in Baghdad were miles long, four [vehicles] wide, to go and get three gallons of gas. People were literally waiting days in line, pushing their cars to the pump. It was 120 degrees, tempers were flaring. We were working very hard to get fuel flowing. The commander of the 3rd Infantry Division gave me a call [one day] and said, 'Hey, Carl, one of my soldiers was just assassinated in a gasoline line trying to maintain order downtown because there's no fuel. I need fuel, and I need it now,' " he recalls.

"I called our task force RIO guy and said, 'We've got to get this thing moving.' So he called KBR and said, 'We need fuel now,' and KBR said 'Well, but we have to go out and get quotes, go to the lowest bidder.' I said, 'There's no time for that. Do it now.' It was that kind of environment."

Says Strock: "In the cool of the evening, when you sit back and reflect on things, were they done in exactly the right way? Perhaps not, but you must understand the environment we were working in. At the same time, we did go through the processes of soliciting bids, and we felt comfortable we were doing things in the right way, even if perhaps not in the ideal way."