Army Contracting Criticized

Senate Committee Faults Delay in Replacing KBR

A Senate panel chastised the Army yesterday for not moving faster to award a new contract to provide logistical support to U.S. troops worldwide, even as the current contractor continued to receive critical reports from auditors, including allegations of overcharging.

The Army has said it would end the current contract with KBR early and award a new contract this summer that would divide the work among three competitors. But Sen. Carl M. Levin (D-Mich.), chairman of the Senate Armed Services Committee, asked during a hearing yesterday: "Why didn't you do it in 2004 when we first brought this to you?"

"I don't have a good answer for you," responded Claude M. Bolton Jr., assistant Army secretary for acquisitions, logistics and technology.

The panel also challenged the Army on whether the military could assume the task of providing services now provided by KBR, which is based in Houston. But Bolton said KBR's more-than-50,000 contractors in Iraq would have to be replaced with a larger contingent of soldiers. "Right now, I don't know of a better way," he said.

KBR won the original contract, known as Logistics Civil Augmentation Program, in 2001 over two competitors. Under the deal, the company provides housing, food and other logistics support to U.S. troops around the globe. It has been paid roughly $19 billion under the deal so far, including $250 million in bonuses, making KBR by far the largest contractor in the country.

But KBR, which until recently was a subsidiary of Houston oil field service company Halliburton, has been repeatedly accused of sloppy bookkeeping, and audits have found such alleged overcharges as charging for meals not served, insisting on embroidered hand towels and overpaying for trailers. Currently, the Defense Contract Audit Agency is withholding $49.6 million in payments from KBR, partly for security costs not allowed under the contract.

In testimony yesterday, auditors recounted how they had turned up more than $1 billion in questionable costs. "Improvements have been made, but to say that everything is perfect -- I wouldn't go that far," said Patrick J. Fitzgerald, the Army's auditor general.

KBR defends its record. "In instances where there have been questions raised regarding charges related to our work, we have routinely provided information requested of us and have fully cooperated with the agencies requesting information, recognizing that audits are a routine process of any government related work," said Heather Browne, a company spokeswoman.

But last summer the Army announced that the LOGCAP program would be changed. Three companies will be awarded contracts making them eligible to compete on a task-by-task basis for work, which could be worth up to $50 billion each over 10 years.

In addition to KBR, the contract has attracted big players in the defense industry, including DynCorp International of Falls Church, which helps train the Iraqi police; CACI International of Arlington; IAP Worldwide Services, a logistics contractor with connections to the Bush administration and to KBR; and the world's largest weapons maker, Lockheed Martin of Bethesda. Serco of Vienna already has received a contract to oversee the other contractors.

While defending KBR's performance, Army officials acknowledged that competition would eliminate some of the problems that emerged under the current contract.

The new structure "will increase government contract oversight and reduce the risk of program risk of exceeding a single contractor's capability, while reducing costs," said Maj. Gen. Jerome Johnson, commanding general of the U.S. Army Sustainment Command, which administers the contract.

Staff writer Dana Hedgpeth contributed to this report.