Thursday, July 13, 2006

Halliburton loses army contract in Iraq

Halliburton loses army contract in Iraq
By Holly Yeager in Washington
Copyright The Financial Times Limited 2006
Published: July 12 2006 20:43 | Last updated: July 12 2006 20:43

The army has decided to end a controversial multibillion-dollar contract with Halliburton, the oil services company, to provide logistics support to US forces in Iraq.

Under a new contracting scheme, to be launched late this year, three contractors will be used for the army’s contracted logistics work, such as providing meals, washing clothes, transporting fuel and delivering mail. An additional contract will be awarded to a single company to manage the workload.

Army officials said the change would improve planning and accountability, and provide better contingency options if one contractor performed poorly. But the shift comes amid charges from government auditors and Democrats in Congress about high costs and poor quality of some of the work carried out by Halliburton, where Vice-President Dick Cheney was formerly chief executive.

Halliburton has stood by its work and yesterday said it was “neither unusual nor unexpected” that the logistics contract was being changed.

It said it might bid for work under the new structure.

The army awarded Halliburton’s Kellogg Brown and Root unit the logistics contract for one year in 2001, and had the option to renew it for nine years.

When the contract began, the work included was relatively modest. But extended US operations in Iraq and Afghanistan have resulted in a heavy demand for the services, and Henry Waxman, a California Democrat critical of the company, said the company had received $16.4bn under the contract since 2001. The firm had more than 50,000 employees and subcontractors in Iraq, Kuwait, Afghanistan, Uzbekistan and Djibouti, a spokesman said.

Loren Thompson of the Lexington Institute, a defence research group, said the change reflected the view that “it’s not a good idea to be so reliant on one contractor”.

He added that, with cuts expected to weapons systems, established military contractors would compete aggressively for the logistics work. “It’s one of the few areas of growth we can anticipate in the defence sector going forward.”

In a letter last week to Donald Rumsfeld, the defence secretary, Mr Waxman said he was pleased the army was ending its contract with Halliburton. But he cautioned that the new structure could pose problems of its own.

He complained that more than three contractors should be allowed to compete for each task, and that too little emphasis was being placed on forcing contractors to compete based on price.

He also raised concerns about the contract to manage the work, saying such a contract, likely to go to a large consulting firm, “creates the potential for conflicts of interest among the contractors because the winning bidder could have independent business relationships with the winning execution contractors”.


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