Friday, March 11, 2005

Halliburton Part II(a): The contract

Part II in what I hope will be an ongoing series.

According to a July 14, 2003, article in the National Review,

Waxman has made three basic accusations about the Halliburton deal. The first is that it was signed without appropriate competition. The second is that it called for Halliburton to be paid under an arrangement that — Waxman says — often results in overcharges to the government. The third objection is that it is a questionable use of federal money because of what Waxman calls Halliburton's "troubling" performance record.

This is a better and clearer framing of the Halliburton side of the debate than I posted previously. The other side of the debate, the "Cheney connection," I'll leave for another post. But for now, let's examine the first of these three points, no appropriate competition.

As I've opined elsewhere, there's at least one compelling reason to "sole-source" a contract in an emergency or wartime situation: time. I myself have had to do it, back when I was in a position to recommend the awarding of contracts. I had no signatory authority myself in this dinosaur-age job of mine, but it was my responsibility to determine whether a contract ought to be sent out to bid, a process that could take weeks to months even for little jobs, or be awarded to a known contractor upon their submittal of a bid that looked reasonable based on my experience. I'd like to point out that even my penny-ante sole-source contracts (the biggest was about $300K, if I recall) would never have been awarded to an unknown quantity, and were awarded only under two circumstances: (a) a right-now emergency such as a fuel spill that had to be cleaned up immediately, or (b) an ongoing part of a work scope that the sole source had already performed, such as a maintenance contract following installation of a remediation system.

The US military, being smarter than I am and, apparently, either smarter or more in need of a mechanism for sole-sourcing things than my company was, has come up with an alternative: LOGCAP, the Logistics Civil Augmentation Program. In brief, LOGCAP is a way to keep a contractor "on retainer." The Army Corps of Engineers' regulation concerning LOGCAP is here, but to summarize, LOGCAP provides for vetting civilian contractors in peacetime or under non-emergency conditions, through competitive bidding, so that they can be used quickly and effectively in wartime or in emergencies for the many tasks that a downsized military is no longer able or "willing" (I use this term not because the Corps, for instance, would turn up their noses at any task - these are the people whose official motto translates as "Let us try," not "Let us evaluate" - but because as a fighting force first, our military is best used elsewhere than putting out oilfield fires, for instance) to perform. LOGCAP enables the military to ensure several things ahead of time:

  • that a contractor has the capability to perform the most likely required work scope in an area, based on the military's best peacetime guess as to what wartime needs will be;
  • that a contractor's personnel have current security clearances and required training (such as annual OSHA refreshers, for instance, where needed);
  • that rapid-response and contingency contracting is streamlined so that the unforeseen can be dealt with;
  • that vendors for foreseeable supplies are available and hold agreements with the contractor;
  • that communication lines between the military and the contractor are pre-established;
  • that documentation requirements are known and acknowledged in advance of need...

I've done limited work on a military facility. Dealing with the above requirements is surprisingly onerous (maybe I shouldn't have been surprised, but I was) and involves slinging a whole different lingo from civvy life. Setting as much up before H-Hour as possible is, IMHO, a terrific way to solve the hydra-headed problem of accomplishing competitive bidding when it's feasible so you can forego it when there's no time, teaching civilian companies the "Army way" before they actually need to know it, and using procurement people's time effectively. Again drawing on my own contracting experience - which was a lemonade stand compared to what the military has to do - a simple, ongoing one-year monitoring contract took, probably, on the order of half as much time and effort to develop, send out for bids, evaluate, and award as a brand-new complicated remediation system installation contract. Not a good use of time unless you're very price-sensitive indeed, which, in the case of LOGCAP, has to play second fiddle to operational preparedness (the simple contracts are dealt with in other ways).

So to Halliburton. LOGCAP was established in 1985, and a combination of its first use and a "conspiracy" of world events quickly established that it ought to be a single global contract, not one contract per area of operations as it was envisioned at first. According to this Army history paper on LOGCAP, Brown & Root (a subsidiary of Halliburton, purchased according to Halliburton's website in 1962) was competitively awarded the first global LOGCAP contract in 1992 from a field of four companies. In 1997, following the Balkan conflict, Brown & Root lost the LOGCAP contract to DynCorp Services. The website says that this contracting change was due to Brown & Root's poor performance in the Balkans; however, the military history cited above implies that the LOGCAP contract term was up in 1996 and the contract was due to be re-competed at that time anyway. However (and interestingly), the DoD, under Clinton, determined that to remove Brown & Root from Bosnia, where they, by then, had extensive experience, would be counterproductive. So Brown & Root was awarded a sole-source contract for that theater only, which remained in force until 1999. At that time, the Bosnia contract was sent out again for full competitive bid, and Kellogg Brown & Root (KBR) won it.

After 9/11, specifically in December 2001, KBR was again awarded the LOGCAP contract in competitive bidding; the military history above says that at the time of 9/11, "[Army Materiel Command (AMC)] was concluding another recompete of the LOGCAP contract," which, if it's not a straight statement that the recompete was already in the works, is certainly a strong implication thereof. The HalliburtonWatch website attempts, in contrast, to make a connection between Dick Cheney's being elected vice president, 9/11, and KBR's award of the contract. It's not out of the question that 9/11 fed into AMC's decision to award the contract to KBR; after all, it was Brown & Root who had so successfully fought the Kuwait oilfield fires after Operation Desert Storm, and the military was clearly embarking upon operations in the same theater and under some of the same conditions. DynCorp, it must be noted, is not an oilfield services provider.

The upshot is, Halliburton-as-KBR did not simply receive carte blanche to start sending invoices from Iraq to Washington; they won a scheduled, competitive contract to supply varied services to the US military in 2001 on a cost-plus basis with a profit margin of 1-3 percent.

A separate, and I gather initially confidential, contract, known as RIO for "Restoring Iraqi Oil," was awarded to Halliburton on a sole-source basis. This contract's workscope involves or involved evaluation of the threat of oilfield fires and disruption, dealing with any such disruption, and rebuilding of oilfield infrastructure and oil production. Is it unreasonable that the prime LOGCAP contractor on-scene, not coincidentally one of the world's largest and best oilfield services providers, with tens of thousands of employees already in theater and a supply network already established, would be awarded this contract?

Enough. "No competition" is true only in the narrowest sense - as if McDonald's or WalMart or Lloyd's could do the same jobs and should have been given the opportunity to bid. Next post: I'll be looking into the second and third Waxman allegations: the inappropriateness of cost-plus contracting and Halliburton's performance record.

1 comment:

Tom said...

Excellent post. I am so tired of the lies about Halliburton. Even though the issue is not in the news as much as it was, it is still important to state the facts.