Workers Blame Halliburton's KBR Unit in Iraq for Shortcomings

Faulting the Army's Primary Logistics Contractor: Defense News, Federal Times, Army Times and Gannett (July 19, 2004). A quick curtain raiser to a Congressional hearing -- something that foreshadows many to come. This comment by one KBR contract officer will have legs: "Rather than having supplies and services in place, the company relied on hiring subcontractors at the last minute."

By DAVID PHINNEY

Former employees who fault a leading U.S. Army contractor for mismanagement, reckless spending and cavalier subcontracting practices are scheduled to testify before a July 22 hearing of the U.S. House Government Reform Committee.

The employees all once worked under a multibillion-dollar contract held by a Halliburton subsidiary formerly known as Kellogg Brown & Root to provide the Army in Iraq and other trouble spots with support such as food services, construction, base maintenance, trucking and logistical services.

One employee expected to testify, Marie deYoung, said she expected to find the same quality standards at the subsidiary, now called Halliburton KBR, as what she experienced during her 10 years in the Army and Army Reserve. But she said she was disappointed during more than four months on the job in Kuwait. 

Assigned to adjust dozens of subcontracts and renew others that KBR had written, deYoung told Defense News she quit after discovering the company was unprepared to meet the Army’s immediate war needs - a key requirement for the 10-year contract known as LOGCAP III. The contract requires KBR to be prepared to support Army needs within 24 hours’ notice, she said.

Rather than having supplies and services in place, the company relied on hiring subcontractors at the last minute, deYoung said.

No Preparation

“They were making it up as they went along, even though they have 10 years of experience in this,” she said. “Halliburton is supposed to be working under a contingency contract to be anywhere in the world, but it was showing up with empty shelves and there were no prepositioned stocks.”

The Philadelphia resident, who left the Army as a captain in 2002, served as a chaplain. She is now finishing a doctoral dissertation on leadership.

In an e-mail response, Halliburton spokeswoman Kathy Gist did not answer whether deYoung’s allegations have merit, but said the company’s code of business conduct prohibits unethical or improper business practices.

“As such, we take any charge or complaint of improper conduct seriously, and investigate these assertions,” she said. “If an issue were to arise, we are committed to addressing them forthrightly and openly.”

This will be the committee’s third hearing on Iraq contracts and the first to include civilian witnesses outside the government. KBR executives also are expected to testify.

The committee’s ranking Democrat, Rep. Henry Waxman of California, located six former Halliburton employees he portrays as whistleblowers and has been pressing for a hearing to air their allegations of waste and abuse by the company.

The contract employees include a former truck driver and a former convoy commander who accuse the company of regularly abandoning $85,000 trucks because of flat tires or other minor breakdowns. A former procurement employee claims KBR repeatedly skirted acquisition regulations and appeared to forgo competitive bidding among subcontractors.

The company has been under investigation by the Defense Department inspector general’s office since February for overcharging for fuel supplied to U.S. troops and civilians in Iraq. Two Defense Contract Audit Agency (DCAA) reports have found deficiencies in Halliburton’s billing system, and the agency is withholding a $186 million payment on disputed food service costs, according to William Reed, the director of DCAA.

Several former KBR workers said that while working under the LOGCAP contract they were actually employed by a Halliburton subsidiary headquartered in the Cayman Islands called Service Employees International Inc. (SEII). The Cayman Islands are a popular tax haven for businesses.

“Everyone working for the LOGCAP was paid by SEII,” said Michael West, who spent three months in Iraq as a foreman under the contract.

SEII was established in 1993, and approximately 70 percent of KBR’s work force for LOGCAP contingency support is comprised of employees “affiliated with SEII,” according to Halliburton’s Gist. She said in an e-mail that all SEII employees are covered by U.S. workplace rules, but do not “participate in such overall KBR programs as employees service awards, etc.”

Another Halliburton subsidiary in the Cayman Islands, Halliburton Products & Services, which also has operations in Dubai, United Arab Emirates, has been the subject of government investigations for doing business in Iran in violation of U.S. sanctions.

Dave Lesar, Halliburton chief executive officer, explained the reasoning behind that offshore subsidiary in a March 13 interview with the Houston Chronicle.

“Every management team has a fiduciary duty to its shareholders to have the most efficient tax structure they possibly can put together within the tax legal framework that exists today in the United States,” Lesar said. “There are hundreds, if not thousands, of companies that have subsidiaries in the Caymans.”