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Army Backs Bonuses To KBR

By Charles R. Babcock
Washington Post Staff Writer
Friday, February 25, 2005; Page E02

The Army announced yesterday that it has approved $9.4 million in bonus payments to a Halliburton Co. subsidiary on more than $1 billion in work supporting the war effort in Iraq and Afghanistan, even though the government hasn't approved final costs and terms.

The Army Field Support Command said in a statement that boards evaluating Halliburton subsidiary Kellogg Brown & Root Inc.'s performance rated the company "excellent" or "very good" on 14 task orders and thus authorized interim "award fees." The awards totaled $5 million on $392 million of logistics work in Afghanistan and Uzbekistan, and $4.4 million on $758 million of logistics work in Kuwait in support of the war in Iraq, according to calculations based on an Army spread sheet.

Halliburton has been criticized by Democrats in Congress after KBR received a no-bid contract to rebuild Iraqi oil fields and auditors found that the company may have overcharged on some of the work. Dick Cheney was Halliburton's chief executive before he ran for vice president in 2000.

Earlier this month, the Army announced it was going against the advice of auditors, who cited $1.8 billion in "unsupported costs," and would not withhold 15 percent of KBR's payments on the contract for which it has now awarded bonus payments.

KBR has billed the government for $10.5 billion under the competitively bid giant logistics contract, according to Dan Carlson, a spokesman for the field support command. KBR has been paid $7.2 billion, he said.

Some Pentagon officials have questioned the use of "award fees" to motivate contractors building expensive weapons systems, saying the bonuses don't help bring projects in under budget. They are a part of many "cost plus" Pentagon contracts, which promise reimbursement for contractors' costs plus possible bonuses.

In several instances, the Army approved awards for KBR that were for only 50 percent of the total bonus pool, which can amount to 2 percent of the contract. Carlson said final awards won't be determined until the government has approved the scope of all the work. He said that was because not all the contracts had been "definitized" -- the process of setting the final terms and cost of the work.

The evaluators "determined that the interim fees were appropriate," Carlson said. Holding back 50 percent of the award pool in several cases was a way of "protecting the government while recognizing the contractor's performance," he added.

The Army announcement noted that the boards recommending the award fees didn't evaluate the work on a dining facilities contract that was criticized by auditors. The performance evaluations also didn't cover the largest task order for logistics support in Iraq, one for $3.6 billion. Carlson said that review will start next week.

Rep. Henry A. Waxman (D-Calif.), a leading House critic of the Halliburton contracts, said in statement: "Welcome to Wonderland. Instead of withholding payments as Pentagon auditors recommended, the Administration is showering Halliburton with millions in bonuses. It's simply incredible that a company would get this kind of reward for billing taxpayers for $1.8 billion in unsupported costs."

"We are very encouraged by these initial scores," said Wendy Hall, a Halliburton spokeswoman quoted by Bloomberg News.

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