Democrat-Led US Congress to Investigate Iraq War Contracts

After announcing his new plan for Iraq this week, President Bush may soon be explaining his conduct of the war dating back to the US invasion when five Democrat-led committees launch eleven separate hearings on the Iraq war over the next few weeks.

One of the major areas of investigation will be the contracting process in Iraq, which has long been the subject of allegations of waste, fraud and abuse.

“This is not going to be a game of ‘gotcha’,” said Sen. Patrick Leahy (Vt.), who will chair the Senate Judiciary Committee. “This is going to be a game of being responsible. If we are going to spend taxpayer dollars, the taxpayers have a right to know where the money is going.”

The Bush administration’s contracting activities in Iraq have attracted a high level of criticism owing to the no-bid procurement process that favored a small group of companies, the lucrative monopolies that process created for Halliburton and Bechtel, the cost-plus nature of the contracts, allegations of gouging and profiteering, violations of federal acquisition regulations and the lack of vigorous congressional oversight to monitor either the processes or the contracts.

The no-bid procurement process, which by definition bypasses the standard process of bidding by competing firms, has raised suspicions that companies were awarded contracts on the basis of their ties to the Bush administration. The two main firms favored in Iraq – Halliburton and Bechtel – both have high-powered connections to the Bush administration. Vice-President Dick Cheney served as CEO of Halliburton from 1995 to 2000 and he is still a major shareholder. Riley Bechtel is a multi-billionaire who was sworn in as a member of President Bush’s Export Council the month before the US invasion of Iraq, to advise the government on how to create markets for US companies overseas.

The massive contracts awarded to Halliburton and Bechtel have served to create sector monopolies in Iraq, according to Rep. Henry Waxman (D-Calif.), incoming chair of the House Government Reform Committee. He told the same Committee in March 2004, “Instead of promoting competition, the Administration is giving contractors monopolies over huge sectors of the reconstruction effort. One company – Halliburton – gets all work related to oil reconstruction in southern Iraq, and another company – Parsons [a business partner of Bechtel] – gets all work related to oil reconstruction in northern Iraq. And they never have to bid against each other for any specific project.”

The Iraq reconstruction contracts contain cost-plus provisions that guarantee contractors a set profit regardless of their expenses, which removes any incentive for the companies to control their expenses. The web site provides a summary of over a dozen audits conducted by various federal agencies between August 2003 and March 2005 which found that Halliburton overcharged the US for contracted services, including –

  • On December 31, 2003, the Pentagon’s Defense Contract Audit Agency “Flash Report” audit found “significant” and “systemic” deficiencies in the way Halliburton estimates and validates costs. According to the DCAA audit, Halliburton repeatedly violated the Federal Acquisition Regulation and submitted a $2.7 billion proposal that “did not contain current, accurate, and complete data regarding subcontract costs.”
  • In an August 16, 2004, memorandum, DCAA “identified significant unsupported costs” submitted by Halliburton’s Kellogg, Brown and Root subsidiary and found “numerous, systemic issues . . . with KBR’s estimates.” According to DCAA, “while contingency issues may have had an impact during the earlier stages of the procurements, clearly, the contractor should have adequate supporting data by now.” When DCAA examined seven LOGCAP task orders with a combined proposed value of $4.33 billion, auditors identified unsupported costs totaling $1.82 billion.

At the March 2004 hearing of the Government Reform Committee, Mr Waxman also told the Government Reform Committee, “Last month, my staff was contacted by two former Halliburton procurement officers. They described company practices that systematically overcharged the taxpayer on hundreds of routine requisitions every day. When they tried to protest, they were ignored. They said that the company’s motto was ‘Don’t worry about price. It’s cost-plus’.”

According to an August 2006 report on the web site, a US government audit of one Bechtel project in Iraq exposed gross mismanagement which caused the government to cancel the $50 million contract. The auditors are now investigating all of Bechtel’s $2.85 billion in Iraq contracts.

US fraud statutes protect against waste of tax dollars at home, but none expressly prohibit war profiteering and none expressly confer extraterritorial jurisdiction overseas. Nevertheless, the US House of Representatives removed a provision in the 2003 Iraq war spending bill that had already passed in the Senate to penalize war profiteers who defraud American taxpayers. The Senate provision had been authored by Sen. Patrick Leahy (D-Vt.), Sen. Dianne Feinstein (D-Calif.), and Sen. Richard Durbin (D-Ill.). At the time, Sen. Durbin said, “I fail to understand how anyone can be opposed to prosecuting those who want to defraud and overcharge the United States government and the American taxpayers.”

When the new Democrat-controlled Congress recently re-convened on January 4, Sen. Leahy immediately introduced the War Profiteering Prevention Act of 2007, which contains penalties stating that contractors who defraud the US government could be sentenced to 20 years in prison and fined $1 million or twice their illegal profits. In a supporting statement, Sen. Leahy said, “There is growing evidence of widespread contractor fraud in Iraq, yet prosecuting criminal cases against these war profiteers is difficult under current law. We must crack down on this rampant fraud and abuse that squanders American taxpayers’ dollars and jeopardizes the safety of our troops abroad.”

Senator Leahy also stated that at least 10 companies have paid more than $300 million since 2000 to resolve allegations of bid rigging, fraud, delivery of faulty military parts and environmental damage. Seven more companies with Iraq reconstruction contracts have agreed to pay penalties without admitting wrongdoing, and a special inspector general has found that millions of dollars appropriated for Iraq reconstruction have been lost and diverted.

Clearly, a system of no-bid contracts is open to abuses, and this situation can only be worsened without oversight. Congressional oversight was precisely the mandate given to the Democrats on November 7, when US voters expressed outrage at the Bush administration and the previous Congress over the issues of Iraq and corruption.

Given that the latest estimates have put the financial cost of the Iraq war at $437 billion, with an additional $100 billion expected to be allocated next year, it is imperative that the Congress now conduct its congressional oversight duties responsibly, without fear or favor.


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