Defense Dept. Read Audits Yet Paid KBR Bill

By Dana Hedgpeth
Washington Post Staff Writer
Friday, August 10, 2007

The Government Accountability Office has found that the Defense Department considered audits that questioned charges from KBR for delivering fuel and rebuilding the oil infrastructure in Iraq when it paid the contractor millions of dollars for its work.

The Defense Department's Army Corps of Engineers decided to pay KBR nearly all of the $221 million in questionable costs because much of the work had already been done by the time the Corps and the contractor negotiated the terms and conditions of the final contract, according to a GAO report released yesterday.

The GAO report did not, however, address a question that some congressional leaders and outside contracting experts have asked: Should the Corps of Engineers, which oversaw the contract, have paid the questioned costs? That decision, according to the GAO, is for the contracting officer to make. According to the report, when the GAO asked an official with the Pentagon's Defense Contract Audit Agency (DCAA) whether he thought the questionable costs should have been paid, he said the Corps' contracting officer "did the best job he could, given the circumstances."

The findings set off a debate between Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, and Rep. Thomas M. Davis III (Va.), the panel's ranking Republican, who requested the investigation of the $2.5 billion KBR contract.

Waxman, who has contended that the Corps "ignored" findings by the DCAA, yesterday called the GAO report "limited in scope" and said he is asking the GAO and Defense Department for more documents on the contract.

"I am also concerned that Defense Department officials apparently believe they must repay all costs that contractors incur, regardless of how high," Waxman said in a statement. "Given the results of this report, I plan to pursue this matter directly with the Defense Department."

Davis's camp said in a statement that he was "sorry if [the GAO report] doesn't fit the story line some people would have preferred."

"This report puts to rest some of the wild and premature charges that were leveled by some members against the government contract officials and against KBR," Davis said. ". . . No one ignored the auditor's findings here, as has been charged. And no one did KBR any special favors."

The Corps of Engineers awarded KBR the contract known as Restore Iraqi Oil -- without competition -- in March 2003. KBR billed the Corps $2.5 billion under 10 task orders to do work that included extinguishing oil fires, delivering fuel from Kuwait and Turkey, and repairing oil infrastructure.

KBR's deal was a cost-plus-award-fee agreement, meaning the company was paid its costs, plus fees, some of which were negotiated and others based on performance. KBR was paid a fixed fee of 2 percent of the negotiated contract cost, plus an award fee of up to 5 percent.

The DCAA questioned $221 million in charges, including $139 million related to how much KBR charged for buying fuel in Kuwait and hauling it into Iraq. Waxman had done his own study, which showed that KBR had charged too much for fuel and its delivery. The GAO report, however, said that Corps officials were told that KBR tried to get lower prices on the fuel and its delivery but that it had to pay higher prices because Kuwaitee subcontractors were concerned about the risks of working in Iraq, and it had higher overhead costs. After looking at DCAA's findings and doing its own analysis, the GAO said the Corps paid nearly all of the costs in question. It did not pay, for example, $4 million KBR charged for leasing trucks that were not used. A Defense Department contracting officer told GAO investigators that "while the contractor probably did not do everything it could have to lower prices, it took reasonable actions to do so."

The GAO said the Corps decided to pay KBR because there were not timely negotiations on the "terms, specifications and price of the task orders before performance began." The negotiations were delayed, the report said, because the Corps changed its requirements on how much fuel it would need, because there was no firm funding for the contract and because KBR had inadequate systems to determine costs.

The GAO said the Corps paid KBR $57 million in award fees -- slightly more than half the maximum allowed under the contract -- without regularly reviewing KBR's performance. Some documents showing how KBR was evaluated for its award fees were destroyed, the report said. In its response to the GAO findings, the Corps agreed that awards were given with little oversight, given the ongoing war.

"There was no firm funding for the mission; no organization existed to administer the contract . . . and there was no firm understanding of the type of security or communications which would be available," Col. Norbert S. Doyle, acting director of contracting for the Corps, wrote to the GAO. Doyle cited an example: "The contract specified that the work would be performed in 'benign' conditions, and it would be somewhat of a stretch to describe the resulting conditions in Iraq as 'benign.' "

View all comments that have been posted about this article.

© 2007 The Washington Post Company