Government Reform Minority Office
It's Your Money -- Waste, Fraud, and Abuse Under the Bush Administration


It's Your Money:
Katrina Relief
Iraq Reconstruction
Homeland Security Contracting
Barrett Investigation

 


Iraq Reconstruction


From the beginning, the Administration adopted a flawed contracting approach in Iraq. Instead of maximizing competition, the Administration opted to award no-bid, cost-plus contracts to politically connected contractors. Halliburton’s secret $7 billion contract to restore Iraq’s oil infrastructure is the prime example. Under this no-bid, cost-plus contract, Halliburton was reimbursed for its costs and then received an additional fee, which was a percentage of its costs. This created an incentive for Halliburton to run up its costs in order to increase its potential profit.

Even after the Administration claimed it was awarding Iraq contracts competitively in early 2004, real price competition was missing. Iraq was divided geographically and by economic sector into a handful of fiefdoms. Individual contractors were then awarded monopoly contracts for all of the work within given fiefdoms. Because these monopoly contracts were awarded before specific projects were identified, there was no actual price competition for more than 2,000 projects.

In the absence of price competition, rigorous government oversight becomes essential for accountability. Yet the Administration turned much of the contract oversight work over to private companies with blatant conflicts of interest. Oversight contractors oversaw their business partners and, in some cases, were placed in a position to assist their own construction work under separate monopoly construction contracts.1

The results of this unsound contracting approach were as costly as they were predictable:

Halliburton
Under Halliburton’s two largest Iraq contracts, Pentagon auditors found $1 billion in “questioned” costs and over $400 million in “unsupported” costs.2 Former Halliburton employees testified that the company charged $45 for cases of soda, billed $100 to clean 15- pound bags of laundry, and insisted on housing its staff as the five-star Kempinski hotel in Kuwait.3 Halliburton truck drivers testified that the company “torched” brand new $85,000 trucks rather than perform relatively minor repairs and regular maintenance.4 Halliburton procurement officials described the company’s informal motto in Iraq as “Don’t worry about price. It’s cost-plus.”5 A Halliburton manager was indicted for “major fraud against the United States” for allegedly billing more than $5.5 billion for work that should have cost only $685,000 in exchange for a $1 million kickback from a Kuwaiti subcontractor.6

Custer Battles
The Air Force found that another U.S. government contractor, Custer Battles, set up shell subcontractors to inflate prices.7 Those overcharges were passed along to the U.S government
under the company’s cost-plus contract to provide security for Baghdad International Airport. In one case, the company allegedly took Iraqi-owned forklifts, re-painted them, and leased them to the U.S. government.

Lack of Progress
Despite the spending of billions of taxpayer dollars, U.S. reconstruction efforts in keys sectors of the Iraqi economy are failing. Over two years after the U.S.-led invasion of Iraq, oil and electricity production has fallen below pre-war levels.8 The Administration has failed to even measure how many Iraqis lack access to drinkable water.9




1 Minority Staff, House Committee on Government Reform, Contractors Overseeing Contractors: Conflicts of Interest Undermine Accountability in Iraq (May 18, 2004).
2 Minority Staff, House Committee on Government Reform, Halliburton’s Questioned and Unsupported Costs in Iraq Exceed $1.4 Billion (June 27, 2005).
3 House Committee on Government Reform, Statement of Marie DeYoung (June 6, 2004).
4 House Committee on Government Reform, Statement of David Wilson (June 15, 2004); House Committee on Government Reform, Statement of James Warren (June 13, 2004).
5 House Committee on Government Reform, Statement of Henry Bunting (June 6, 2004);
6 U.S. Department of Justice, Press Release: Former KBR Employee and Subcontractor Charged with $3.5 Million Government Contract Fraud in Kuwait (Mar. 17, 2005). See also, Ex-Halliburton Man Charged with Defrauding the U.S. of $3.5 Million, New York Times (Mar. 18, 2005).
7 Department of the Air Force, Memorandum in Support of the Suspension of Custer Battles LLC, et al. (Sept. 20, 2004).
8 Government Accountability Office, Rebuilding Iraq: Status of Funding and Reconstruction Issues (July 28, 2005).
9 Id.


Report waste, fraud, and abuse
Committee on Oversight and Government Reform
U.S. House of Representatives
2157 Rayburn House Office Building
Washington, D.C. 20515
(202) 225-5051

Committee on Oversight and Government Reform, United States House of Representatives | Chairman Henry A. Waxman