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Army to End Expansive, Exclusive Halliburton Deal

Halliburton headquarters near downtown Houston, Tex.
Halliburton headquarters near downtown Houston, Tex. (Richard Carson - Reuters)

The heavy involvement of U.S. contractors in Iraq has been one of the defining features of the American presence there, with private companies called on for duties as varied as guarding supply convoys and analyzing intelligence.

No contractor has received more money as a result of the invasion of Iraq than Halliburton, whose former chief executive is Vice President Cheney.

The logistics work is performed through a subsidiary, Kellogg Brown & Root Services Inc. Last year, the Army paid the company more than $7 billion under the contract, according to a search of government contracting data by Eagle Eye Inc., a private consulting firm. The number this year is expected to be between $4 billion and $5 billion, according to Randy King, a program manager with the Army.

The company maintains that its billing disputes with Defense Department auditors have been resolved and that its work has received rave reviews from the military. "By all accounts, KBR's logistical achievements in support of the troops in Iraq, Kuwait and Afghanistan have been nothing short of amazing," said company spokeswoman Melissa Norcross in a statement.

King, the Army official, agreed yesterday. "Halliburton has done an outstanding job, under the circumstances," he said. He added that Pentagon leaders ultimately decided they did not want to have "all our eggs in one basket" because multiple contractors will give them better prices, more accountability and greater protection if one contractor fails to perform.

Halliburton initially won the contract in December 2001. At the time, the deal was relatively modest in size, but stubborn insurgencies in both Iraq and Afghanistan have stretched U.S. troops and kept Halliburton busy trying to meet their needs.

Known formally as the Logistics Civil Augmentation Program, or LOGCAP, the contract "has expanded beyond what anyone could have imagined," said Dov S. Zakheim, the Pentagon's comptroller from 2001 until 2004 and now a vice president at consulting firm Booz Allen Hamilton Inc. "The KBR people themselves would point out that the challenges they had coming out of Iraq, over and above everything else they had to do, were taxing their systems. You're really asking too much of one firm to be able to manage all of this."

The original contract included one base year with nine option years. The Army says it will not pick up the next option year and instead plans to put out a new request for proposal by the end of the month. It expects to announce winners in November.

The bidding on the new contract is likely to attract some high-profile suitors, including weapons makers Lockheed Martin Corp. and Northrop Grumman Corp.

"These are huge contracts. They are among the biggest government services contracts that have ever been created," said Loren Thompson, chief operating officer of the Lexington Institute, a defense research organization in Arlington. "Most of the big, integrated defense contractors recognize that new sales of military hardware are going to be hard to come by in the years ahead. There's a general migration to services. And no contract on the horizon is bigger in services than LOGCAP. It's just too big to ignore."

Rep. Henry A. Waxman (D-Calif.), a frequent Halliburton critic, said he would like to see even more companies included as winners in order to increase competition as work arises. But he welcomed the move away from the exclusive contract with Halliburton as a good first step. "When you have a single contractor, that company has the government over a barrel," Waxman said. "One needs multiple contractors in order to have real price competition. Real competition saves the taxpayer money."

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