Army contractor in Iraq is warned to cut workforce

KBR, a Houston-based contractor that provides battlefield services under a $33.8 billion, 10-year deal, has increased its employee levels.
KBR, a Houston-based contractor that provides battlefield services under a $33.8 billion, 10-year deal, has increased its employee levels. (Daniel Acker/bloomberg News)
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By Richard Lardner
Tuesday, November 3, 2009

The Army's primary support contractor in Iraq has been warned by Pentagon auditors to cut its workforce there or face nearly $200 million in penalties for keeping thousands too many on the payroll.

Houston-based KBR, responsible for everything from mail and laundry to housing and meals, has increased employee levels while U.S. troops steadily leave the country after more than six years of war, the audit says. As a result, the government is paying far more in labor costs in Iraq than it should as military resources are shifted to Afghanistan.

The Oct. 26 report from the Defense Contract Audit Agency opens a window into a behind-the-scenes battle over KBR's billing and management practices. The company provides crucial battlefield services under a $33.8 billion 10-year deal signed in 2001.

There have been serious disagreements between KBR (formerly known as Kellogg, Brown and Root) and defense auditors, who have challenged billions of dollars in charges as questionable. And KBR's critics, many of them Democrats in Congress, have accused the company of gouging the government during a time of war instead of being a responsible steward of public money.

A senior Army official said Monday that the audit is being examined and that the review should be completed within the next few weeks.

"If the facts substantiate the report, we will take appropriate action," Lee Thompson of the Army Sustainment Command said at a hearing held by the independent Commission on Wartime Contracting.

April Stephenson, director of the audit agency, told the panel that "without significant action," KBR will have one employee for every 3.6 troops in Iraq by August 2010.

KBR officials say the company has planned to cut employee levels in Iraq and is working closely with commanders there. But these efforts have been slowed while KBR waited for formal guidance from the military on the troop drawdown.

KBR spokeswoman Heather Browne said the company is also reviewing the final audit. She said the company's work in Iraq "is being conducted in the ever-changing environment of a war zone which brings its own daily challenges and priority tasks." But the audit says KBR's planning consists of "disjointed processes" and weak accounting procedures when a detailed, forward-looking strategy is needed for dealing with a reduction in forces announced nearly a year ago. A small company might be excused for such a shortcoming, it says, but a large corporation such as KBR should not be.

KBR had 17,034 direct-hire employees in Iraq in January 2008, when about 160,000 American forces were there to quell a growing insurgency, the audit says. Yet as of Sept. 1, 17,095 KBR employees were in Iraq even though troop levels had dropped to about 130,000, bases had closed and the services KBR provides were being scaled back.

Current plans call for the number of U.S. troops in Iraq to decrease to 50,000 by August 2010. All American forces are scheduled to be out of the country by December 2011.

Although KBR already should have made significant reductions, the report proposes giving the company until Jan. 1 to put in place a plan that would trim 2,857 employees identified in the audit as excess. Each full-time employee earns about $8,425 a month in pay and benefits, the audit says, so the cuts will produce nearly $193 million in savings between the beginning of January and the end of August, the audit says.

The auditors say that if KBR does not make the recommended changes or take even more aggressive steps, the agency will challenge future costs for the excess staff as being "unreasonable," which means the government may not pay the company.

Beyond KBR, the Government Accountability Office told the wartime contracting commission that the Defense Department needs greater control over its contractors and equipment in Iraq and Afghanistan.

The office cited significant problems with a U.S. database that was supposed to compile information about contractors and the work they do.

-- Associated Press

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