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Cleansing Halliburton

How did Halliburton—a poster child of war profiteering—receive such absolution from anti-war activists and the media?

| Mon Jun. 1, 2009 12:34 PM EDT

Shocking Revelations

The Pentagon even appears willing to pay KBR for contracts that may have resulted in the deaths of military personnel in Iraq, allegedly electrocuted due to shoddy work by the company's electricians.

Just as Lesar was addressing Halliburton's shareholders in Houston, Senator Byron Dorgan's Senate Democratic Policy Committee was holding a hearing on Capitol Hill focused on KBR. Testifying was Jim Childs, a master electrician hired by the U.S. Army to help review military facilities in Iraq.

Childs claims that as many as 70,000 KBR-maintained buildings where troops lived and worked were unsafe because of faulty electrical wiring. "When I began inspecting the electrical work performed by KBR, my co-workers and I found improper electrical work in every building we inspected," Childs said. Hundreds of soldiers are believed to have received electrical shocks in showers and elsewhere as a result. There have been four documented fatalities, including Staff Sergeant Ryan Maseth of Pittsburgh, Pennsylvania, a Green Beret, who died of electrocution while showering in his barracks in Iraq on January 2, 2008. (Maseth's family has sued KBR, alleging wrongful death.)

According to Senator Dorgan, documents show that KBR was paid huge bonuses by the Pentagon for this work, much of it after the allegations became public. If accurate, this gives "shocking" a new meaning. "How could it be that, given these obviously widespread problems with KBR's electrical work, the Pentagon decided to give KBR bonuses totaling $83.4 million for such work?" he wondered.

KBR, of course, denies everything. "We believe the standards that we did employ were standards that were known and thought to be acceptable in an expeditionary environment," KBR's William P. Utt told the Associated Press in response. "We don't think the wiring that we installed was potentially dangerous." In a brief statement about the deaths, the company wrote: "Based on our current knowledge and the information we have gathered to date, KBR has found no evidence of a link between the work the military tasked KBR to perform and the reported deaths that have resulted from electrocution."

Who Is Responsible?

One of the biggest problems with the sprawling 2008 KBR mega-contract appears to be that not enough people are watching the store (and evidently, some of those who do regularly doze off when payment issues arise).

In early May, Michael Thibault, co-chair of the independent Commission on Wartime Contracting in Iraq and Afghanistan, highlighted a simple, if disturbing statistic at the second hearing of his newly established commission. Out of 504 oversight officials that, by Pentagon estimate, are needed to keep an eye on KBR's contract in Afghanistan alone, just 166 were actually in the field in April 2009. As Thibault added:

"After more than six years of fighting, this is just one example of serious and persistent shortfalls in staffing and training. In military parlance, no one is pulling guard duty on contractor performance. This example, an issue by itself, points to another broader question. Who is responsible? Who's going to fix these types of issues?"

At the Democratic Policy Committee hearing in late May, Charles M. Smith, a 31-year veteran of contract management in the U.S. Army, testified that Pentagon officials were deliberately ignoring criticism in deciding to reward KBR. Smith was in charge of KBR contracts in Afghanistan and Iraq, as well as of the award-fee or bonus-payment process that went with them. He refused to allow any bonuses to be paid out, however, because the company was not able to provide proper documentation of its costs. This was one reason, he believes, that he was taken off the contract in August 2004. Smith became a whistleblower after he retired a year ago. Here is a sample of his testimony:

"The award-fee process is supposed to evaluate a contractor's performance level and provide a 'bonus' or award fee for superior performance. Failure to perform satisfactorily should result in a significantly lower or no award fee. [The award system] appears to me to have failed to work as it was intended and to have led to poor service for American troops, wasted taxpayer money, and possibly the deaths of soldiers in KBR operated facilities...
"The problems for operating in the environment of Iraq and Afghanistan are not insignificant. However, the major failure appears to me to have been a culture that decided KBR was too big to fail and too important to be held to account. The Army was aware of KBR's poor performance in Iraq. There have been numerous government inspections and reports. The Army, however, continued to give KBR high award fees. Those high award fees appear to have sent a message to KBR that performance did not really matter. Award-fee boards and decisions are a communications tool between the government and the contractor. The contractor learns what is important to the government and will respond accordingly."

And the record shows that KBR did "respond accordingly."

Remembering Halliburton

In the meantime, Halliburton, which provided so many years of corporate "oversight" for KBR, has been cleansed of all charges in the court of public opinion and has essentially dropped from view. It has also done its best to ignore a shareholder resolution brought by Patrick Doherty, the comptroller of the city of New York, that raises the obvious issue of war profiteering in Iraq, based on the Pentagon dollars it raked in while its former CEO helped oversee the war that was making it so much money.

Some shareholder activists continue to pursue the company by other means. For instance, the pension fund of the Policemen and Firemen Retirement System of the City of Detroit filed a lawsuit in mid-May against David Lesar and other executives of KBR and Halliburton, accusing them of a "reign of terror." The lawsuit listed a number of complaints including bribes in Nigeria, overcharging the Pentagon for services rendered, accepting kickbacks, engaging in human trafficking, and concealing the rape of an employee.

"Under defendants' watch, and supposedly under their control and supervision, the companies were permitted to engage in conduct so notorious that the name 'Halliburton' has become virtually synonymous with 'corruption,'" the pension fund said in a complaint filed at the Harris County District Court in Houston. "Defendants' failures have caused the Companies to suffer hundreds of millions of dollars in damages, and to be exposed to substantial additional judgments in the future."

Heather Browne, a company spokeswoman, responded: "It appears that the lawsuit is based on unfounded allegations. We intend to vigorously defend ourselves."

Another shareholder activist, John Harrington, a socially responsible investment manager in California, used his KBR shares to file a protest resolution against the company this May. According to Harrington's press release:

"KBR's management is obviously not taking their human rights footprint very seriously. The board of directors is accountable to shareholders, but only if we assert ourselves as the real owners of the company. Understandably, shareholders don't like being associated with atrocities. If ever there was a need for responsible fiduciary human rights oversight within a company, it is with KBR. This company has been castigated in the press, sued, and accused of bribery, rape, murder, political corruption, tax avoidance, and who knows what else."

KBR nonetheless took in another $5.7 billion from the U.S. taxpayer in 2008, up 15% from the $4.8 billion it received in 2007. With the planned drawdown of U.S. troops in Iraq, KBR expects its revenue to fall this year. But shareholders need not worry: its contract with the Pentagon, signed in April 2008, potentially sets it up to make more than triple the maximum profits allowed in the previous six years.

Recently, the Financial Times ran an interview with KBR's Utt, aptly headlined "KBR believes it is ready to construct a new image." The same day stock analyst Will Gabrielski raised his profit estimate for KBR, causing company shares to jump.

If forgiving and forgetting are now the norm when it comes to the records of Halliburton and KBR in the Bush years, the question remains: Will the Pentagon complete this cleansing ritual or engage in the serious task of investigating both companies?

Pratap Chatterjee is the author of Halliburton's Army: How a Well-Connected Texas Oil Company Revolutionized the Way America Makes War. He is the former executive director of CorpWatch and a shareholder of both Halliburton and KBR.

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