ASHINGTON,
D.C. – U.S. Representative Jan Schakowsky (D-IL) issued this statement
after reading Blackwater USA’s Nov 2004 newsletter in which the president
of the private military contractor cheered the re-election of President
Bush:
“Blackwater
USA, one of the private military contractors whose business flourished
as a result of lucrative, multi-million dollar, tax-payer funded contracts
in Iraq, cheered the re-election of George Bush.
“Like
Halliburton, which received billions in contracts and whose stock prices
spiked after Bush’s re-election, Blackwater, four of whose employees were
brutally murdered in Fallujah, looks forward to four more years of war-time
contracts.
“These
private military contracts raise critical questions about both cost effectiveness
and mission effectiveness. An investigative report by The News
& Observer newspaper published at the end of October concluded
that many contracts, including Blackwater’s, drive up rather than reduce
costs for the government. U.S. soldiers are paid a fraction of the
close to $200,000 salaries earned by Blackwater employees for performing
the same type of training and security jobs. (See Story Below)
“As
important are the questions of accountability and oversight raised by contractors
like Blackwater who perform sensitive military functions in places like
Iraq and Colombia: Who gives the orders; where do contractors fit
in the chain of command; who vets their employees; who is responsible if
things go wrong; and how are they spending taxpayer dollars?
“Congress
has a responsibility to expand oversight and access to contracts signed
with private firms. That is why I introduced a bill that would require
the Department of Defense to supply Congress with copies and descriptions
of new contracts and task orders that the Pentagon signs with private firms
to conduct business in Iraq or Afghanistan. In the 109th Congress,
I will reintroduce this bill and will work closely with Republicans and
Democrats to get it passed.
Copyright
2004 Associated Press
All
Rights Reserved
The
Associated Press State & Local Wire
October
25, 2004, Monday, BC cycle
SECTION:
State and Regional
LENGTH:
1746 words
Use
of private contractors in war zones proves costly
By
JOSEPH NEFF and JAY PRICE, The News & Observer of Raleigh
RALEIGH,
N.C.
Jerry
Zovko's contract with Blackwater USA looked straightforward: He would earn
$600 a day guarding convoys that carried food for U.S. troops in Iraq.
But
that cost - $180,000 a year - was just the first installment of what taxpayers
were asked to pay for Zovko's work.
Blackwater,
based in Moyock, N.C., and three other companies would add to the bill,
and to their profits.
Several
Blackwater contracts obtained by The News & Observer open a small window
into the multibillion-dollar world of private military contractors in Iraq.
The contracts show how costs can add up when the government uses private
military contractors to perform tasks once handled by the Army.
Here's
how it worked in Zovko's case: Blackwater added a 36 percent markup, plus
its overhead costs, and sent the bill to a Kuwaiti company that ordinarily
runs hotels. That company, Regency Hotel, tacked on its costs for buying
vehicles and weapons and a profit and sent an invoice to a German food
services company called ESS that cooked meals for the troops.
ESS
added its costs and profit and sent its bill to Halliburton, which also
added overhead and a profit and presented the final bill to the Pentagon.
It's
nearly impossible to say whether the cost for Zovko doubled, tripled or
quadrupled. Congressional investigators and defense auditors have had to
fight the primary contractor, Halliburton, for details of the spending.
The companies say the subcontracts are confidential and won't discuss them.
About
20,000 private security contractors are now in Iraq, escorting convoys,
protecting diplomats, training the Iraqi army and maintaining weapons.
The
bills for this work flow from the bottom up. They start with Blackwater's
$600-a-day guns for hire such as Zovko and his three comrades, who were
killed escorting a convoy through Fallujah in March.
At
the top is Houston-based Halliburton, which has an open-ended "cost-plus"
contract to supply the U.S. military with food, laundry and other necessities.
Cost-plus means the U.S. government pays Halliburton all its expenses -
its costs - plus 2 percent profit on top.
So
far the Army has committed $7.2 billion on this cost-plus contract to Halliburton,
which has been criticized for its performance in Iraq. The company has
drawn additional political fire because of its ties to Vice President Dick
Cheney, a former Halliburton CEO.
Henry
Bunting, a former Halliburton purchasing officer, said he heard a common
refrain in 2003 in Kuwait from managers at KBR - also known as Kellogg
Brown & Root - a division of Halliburton: "Don't worry about price.
It's cost-plus."
"There
is no question the taxpayer is getting screwed," said Bunting, who was
an Army staff sergeant in Vietnam. "There is no incentive for KBR or their
subs to try to reduce costs. No matter what it costs, KBR gets 100 percent
back, plus overhead, plus their profit.
"The
Army said it is satisfied with Halliburton's performance.
"They
are providing essential services to our troops every day," said Daniel
Carlson, a spokesman for the Army Field Support Command, which oversees
the contract. "All the reports from the field come back that they are providing
the services adequately."
Even
if the Pentagon could tally all the layers of profit and overhead, it would
struggle to compare the cost of using contractors such as Zovko in Iraq
against the cost of soldiers.
According
to a Defense Department Web site, a soldier with Zovko's experience and
final rank (he was a sergeant) would receive about $38,000 a year in base
pay and housing and subsistence allowances. That figure would not reflect
additional costs for things such as health and retirement benefits or combat
pay.
The
shift to private contractors has often been justified as cheaper and more
efficient. But the real reason for the use of private contractors is to
reduce the political costs of war, according to P.W. Singer, an expert
on private contractors and the military at the Brookings Institution in
Washington.
By
using private contractors to do work soldiers once did, Singer said, the
administration doesn't have to call up more regular troops, or National
Guard and reserves, or compromise with allies to get them to send more
troops.
"We
don't need another division there - we've got 20,000 private military contractors,"
Singer said.
But
Singer said it's hard to see how five layers of profits and overhead could
save money.
"A
cost-plus structure is contrary to all the lessons of free-market economics,"
Singer said. "It is most ripe for abuse ... and by layering it and layering
it, you make it even worse."
The
way to keep costs under control is vigorous oversight, Singer said. But
government auditors and congressional investigators have had a difficult
time examining how money has been spent in Iraq.
A
recent audit by the Defense Contract Audit Agency said Halliburton could
not document 42 percent of a $4 billion invoice submitted to the Pentagon.
Much of the $1.8 billion that lacked documentation was for subcontractors
who helped feed U.S. troops - the area in which Blackwater was working.
Halliburton
will not discuss subcontracts, saying they are private dealings. Company
officials dispute all accusations that they have overbilled the Defense
Department.
The
News & Observer obtained the Blackwater documents while reporting on
the fate of four Blackwater contractors ambushed and killed in Fallujah
in March: Zovko, Scott Helvenston, Wesley Batalona and Michael Teague.
In
the days after the men were killed, the images of the mob abusing the contractors'
bodies and dragging them through the streets drew worldwide outrage. The
incident also spotlighted the growing role of private military contractors.
What
wasn't clear at the time was how complex a structure lay beneath a simple
decision: to use private contractors in Iraq.
Blackwater's
charges to Regency for Zovko's work were $815 a day, a markup of $215.
In addition, Blackwater billed Regency separately for all its overhead
and costs in Iraq: insurance, room and board, travel, weapons, ammunition,
vehicles, office space and equipment, administrative support, taxes and
duties. Blackwater executives declined to be interviewed for this report.
Regency
then billed ESS, the German food company. It's unclear how much Regency
tacked on for profit and overhead; Jameel Al Sane, the owner of Regency
Hotel, and his associate, retired U.S. Army officer Tim Tapp, declined
to answer questions.
Kathy
Potter, a former Blackwater employee who helped set up the company's Kuwait
office, said Regency was making a tidy profit.
"Tim
and Jameel would do stuff like quote ESS a price, say $1,500 per man per
day, and then tell Blackwater that it had quoted ESS $1,200," Potter said
in an interview this summer.
ESS,
in turn, contracted with KBR, the division of Halliburton, which then billed
the U.S government.
The
Army would not provide information on payments to ESS. The government has
no contract with ESS, officials said, so the public must request information
from KBR.
Neither
KBR nor ESS would answer questions about the contracts. The information
belongs to KBR's subcontractors and is confidential, KBR spokeswoman Melissa
Norcross said.
"Any
contract details between Compass/ESS and its suppliers and employees are
confidential and we adhere to a policy of nondisclosure," Mike Moore, managing
director for ESS in the Middle East, wrote in an e-mail message.
Even
the U.S. government struggles to get information about the spending. Accountants
in the Defense Contract Audit Agency have had a long-running problem getting
Halliburton to back up its invoices with documentation.
In
March, the agency complained that Halliburton wasn't backing up its bills,
despite repeated requests for supporting paperwork. The auditors said Halliburton
couldn't ensure subcontractors were doing their work and didn't log their
payments to them.
Halliburton
billed the government for as much as three times as many meals as were
actually served, auditors said. The company couldn't adequately explain
or document payments to its dining subcontractors.
Despite
those complaints, the defense agency that approves the payments, the Army
Field Support Command in Illinois, kept giving Halliburton more time to
answer the auditors - three extensions totaling 135 days.
Finally,
the auditors lost patience.
In
a strongly worded memo Aug. 16, they said Halliburton could not support
$1.8 billion of a $4.2 billion payment request. The auditors urged the
Army to stop the extensions and withhold 15 percent of the payment until
Halliburton provided the backup documents: "It is clear to us KBR will
not provide an adequate proposal until there is a consequence."
The
Army has not yet decided whether to withhold the 15 percent from Halliburton.
Congress
has a hard time getting answers as well.
Rep.
Henry Waxman of California and other Democrats on the House Government
Reform Committee have had trouble getting information on basic spending
or Defense Department audits of Halliburton.
The
administration has not turned it over, and the committee has requested
but not received copies of KBR contracts with subcontractors.
"We
don't have accountability, we don't have transparency on where the money
is spent," Waxman said. "Taxpayer money is being wasted. Huge amounts are
going to subcontractors, and we have no idea how the money is being spent."
The
private companies have also acted to protect themselves from their individual
contractors and subcontractors.
For
example, at least some private contracts protect the companies from their
workers' becoming whistle-blowers. Contractors wanting to work for Blackwater
in Iraq, such as Zovko, must sign contracts that compel them to pay Blackwater
a quarter of a million dollars in instant damages if they violate their
contract for doing things such as discussing details of the contracts or
work.
The
contract between Blackwater and Regency also contains explicit confidentiality
clauses. Singer, the Brookings Institution analyst, said that is typical
but troubling: The agreement is between private companies, but their activities
are wholly in the public interest.
"The
public is paying for it, and it is taking place in a war zone," Singer
said. "It illustrates the lack of transparency in this whole business."
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