A Contract to Spend

A company with powerful Washington connections stands to earn millions supporting the Pentagon's War on Terror -- thanks to a contract critics call an invitation to overspend.

| Thu May 23, 2002 3:00 AM EDT

Secretary of Defense Donald Rumsfeld may be playing the role of a budget hawk these days, advocating the Army abandon its highly-touted $11 billion Crusader artillery program. But that doesn't necessarily mean the Pentagon is being pushed to tighten its belt.

Embracing a policy trend initiated during the Clinton administration, the Bush White House has advocated the use of civilian contractors to fill scores of government needs. "Only those functions that must be performed by the [Department of Defense] should be kept in the DoD," Rumsfeld wrote in a state-of-the-military review just seven months ago. "Any function that can be provided by the private sector is not a core government function."

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For one defense contractor in particular, that approach is proving staggeringly fruitful. Kellog Brown and Root Services, a division of Vice President Dick Cheney's former employer, Halliburton Companies, has provided the bulk of logistics services for the Army since 1992. Whenever US troops venture abroad, Brown and Root builds the barracks, cooks the food, mops the floors, transports the goods and maintains the water systems before and after the soldiers arrive.

The support services Brown and Root delivers represent the kind of work the Pentagon has said does not require the attention of today's highly-trained GI's. Using a civilian contractor instead, Army officials insist, is simply less expensive.

Brown and Root's most recent deal with Washington, however, is unlikely to be cheap. Awarded on Dec. 14, the deal with the Army's Logistics Augmentation Program -- the Pentagon division responsible for providing support services to Army bases around the world -- has a base period of one year. But the contract can -- and if history is any guide will -- be extended for an additional nine years.

The total cost of the deal is almost impossible to estimate, as Brown and Root's fees will be limited only by the amount it spends to meet the Army's requests and the degree to which it pleases military brass. If the company's past performance is any guide, Brown and Root's bill could quickly climb into the billions.

The contract places no limits on the quantity of services delivered -- an approach Army officials argue is designed to maximize flexibility. It enables the Army to send Brown and Root employees to Uzbekistan on 72 hours notice to build a base camp. It also allows the Army to comply with mandatory downsizing guidelines established as part of former Vice President Al Gore's campaign to streamline government. In essence, Brown and Root provides the Pentagon with a private battalion of engineers, janitors and other support staff.

The unusual manner in which the contract was awarded is another cause for concern, budget watchdogs claim. The companies bidding for the contract were asked to submit support proposals for a theoretical scenario. When the proposals were reviewed, Army officials concede, cost was not the deciding factor.

"Brown and Root offered the best value to government, considering price and non-price factors," says Army lawyer Dave Defrieze. "Cost was considered but because of the nebulous nature of cost in the contract, it wasn't the most significant."

Under the new contract, Brown and Root will be reimbursed for every dollar it spends to support the troops, and will also receive a base fee of one percent, which will guarantee the company a profit. In addition, the contract provides that Brown and Root can earn another fee provided the military approves of the company's performance. That award will be calculated as a percentage of Brown and Root's costs, a fact which critics suggest will serve only to encourage the company to spend as much as possible.

"The more money [Brown and Root] spend, the more profitable the contract is," says Professor Steve Schooner, a contract expert from George Washington University. "Nobody in their right mind would enter into a contract that basically says: 'Come up with creative ways to spend my money and the more you spend the happier I'll be.'"

Operating under similar rules, Brown and Root consistently earned high points -- and high award fees -- from military officials for its support of US troops in the Balkans.

"The government was very happy with all the things that Brown and Root did because they were building to maximum standards rather than minimum standards," says Mike Noll, the deputy program manager of the Army's logistics program.

According to Joan Kibler, spokeswoman for the Army Corps of Engineers, over a five-year period Brown and Root received 96 percent of all available awards fees.

"The military folks love them. They're ecstatic with them," says Schooner. "What military officer wouldn't want the best for soldiers on the front?"

Some budget hawks on Capitol Hill, however, have given the company far less glowing reviews.

A September 2000 report by the General Accounting Office, Congress's budget oversight arm, found that Brown and Root was providing nearly twice the electricity necessary to the army's facilities in Kosovo, at a cost of some $17 million a year. The same report found that Brown and Root ordered $5.2 million worth of furniture for camps in Kosovo, an amount so excessive the Army struggled to find space for all the furniture and spent $377,000 just processing the order. The GAO also charged that Brown and Root routinely either overstaffed operations, resulting in employees standing around on long breaks, or was over-eager in its hiring, paying employees to work around the clock for no apparent reason. Offices at the Army's Camp Bondsteel in Kosovo were cleaned four times a day, the report states, latrines a mere three times.

From 1995 to 2000, Brown and Root billed the government for $2.2 billion for its logistics support in Kosovo, making the services contract the costliest in US history. Overall, Brown and Root's costs amounted to nearly one-sixth of the total spent by the military on Balkans operations.

Still, Army officials appear to have given the GAO report little credence when considering bids for the new contract. Defrieze admits that past experience and documented performance was most important to the officers reviewing the bids, and no company has had more experience in the still-young business than Brown and Root. With the GAO report set aside and only the Pentagon's evaluations considered, no company has exhibited better performance, either.

"We were only looking at relevant past performance - which is limited to three years," says Defrieze. "We did not find relevant past-performance that indicated significant cost-control problems with Brown and Root."

Some of these excesses, the GAO report states, are the result of the Pentagon's failure to properly manage Brown and Root's activities. The report found that many of those administering the Balkans contract wrongly believed that, "they had little control over the contractor's actions once it was authorized to perform tasks." One Army contracting officer at Camp Bondsteel appeared to believe that the military was working for Brown and Root, describing the company as the "customer" in an internal email.

Noll admits that the Army officers administering the Brown and Root contract in Kosovo "may have been naive, and not familiar with the contracting procedures." But he says that has changed. With the new contract, he says the Army is committed to making sure there will be "no more Camp Bondsteel," and has instructed officers administering the contract to weigh cost-control effort more heavily.

At this point, however, those internal policies appear to be all the Army has done to ensure that the excesses seen in Kosovo are not repeated. The manner in which the contract is administered has not changed, and the payment structure remains the same. Like in the Balkans, the Army, the Defense Contract Management Agency and the Defense Contract Audit Agency are all responsible for oversight and monitoring. Brown and Root will compile monthly project reports and the company's work will be evaluated -- and its award fee determined -- twice a year.

As of early May, however, it was still unclear how the three offices would work together to administer the contract -- even though Noll says Brown and Root is already operating a base camp for the Army in Uzbekistan. In fact, a spokesman for the Defense Contract Management Agency said at the time that his office was "not involved" in the new contract in any way.

Contracts like the one awarded to Brown and Root are not without their defenders, of course. Steven Kelman, a professor of public management at Harvard's Kennedy School of Government and a lobbyist for the information technology firm Accenture, compared the GAO criticism to preliminary notes on a first draft.

"There's a learning curve," he says. "But the important thing is that the government is trying to hold companies accountable for their performance."

Even when it comes to performance evaluation, however, the contract gives little emphasis to controlling costs. For Brown and Root to earn the highest possible points, it is required only to "implement at least minimal cost avoidance measures."

"What you have is a concern with the appearance of cost-control," says Schooner.

The result, says Danielle Brian, executive director of the non-profit Project on Government Oversight, is a "pay-now, review-later" approach to contracting.

"Really what it is, is making the flow of tax payer money to these favorite contractors easier and easier with less oversight and less guarantee that we're getting what we're paying for," Brian charges. "We no longer know what we're going to get for our money. And it really opens up the government for being taken for a ride."

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