December 7, 2007

Senate Democrats Hold Hearing to Highlight Waste, Fraud, and Abuse in Defense Contracting

Today, the Democratic Policy Committee held a hearing investigating waste, fraud and abuse at the Department of Defense and contracting in Iraq. In addition to receiving testimony from whistleblowers involved in Iraq contracting, the committee received written statements and questioned two of the nation’s leading experts in military affairs. Below are highlights from their submitted testimony.

Highlights from the Submitted Testimony of Larry Korb of the Center for American Progress:

• Korb Testified the Pentagon Can Keep the Army and Marines in Iraq Fully Funded Until March. Korb said, “With the passing of the Pentagon's $459 billion base budget earlier last month, there is no immediate funding crisis. Should the war funding debate drag on, the Pentagon has the authority to transfer funds from a number of other Department of Defense accounts to finance operations in Iraq in the interim; in fact, the Pentagon has already approved this transfer. Shifting these funds would keep the Army and Marines in Iraq fully funded until March.”

• Korb Submitted Testimony Claiming That Waste, Fraud, and Abuse Have Become the Hallmark of Contracting in Iraq. Korb cited a recent Defense Contract Audit Agency report which found that out of $57 billion worth of contracts, more than $10 billion are either questionable or unsupported - $2.7 billion of which was attributed to Halliburton. He also submitted testimony claiming, “As of late August 2007, there were 73 separate criminal investigations into contracts worth more than $5 billion. Abuse has become endemic. For example, Parsons Global Inc. was charged with building 140 primary health care centers throughout Iraq, but only completed six after two years and half a billion dollars spent. Parsons was also paid $62 million to build the Iraqi Police College, but the barracks failed to include proper plumbing, causing sewage to leak through the floors – a building that has not yet been repaired, according to the House Oversight and Government Reform Committee. Construction of the $600 million Baghdad embassy has been plagued with safety and construction problems, and contractor First Kuwaiti has been accused of severe labor abuses and human trafficking.”

Highlights from the Submitted Testimony of Philip Coyle of the World Security Institute:

• Coyle Testified the Sharp Increase in War Costs, From $5 Billion to $10 Billion Per Month, Can Not Be Attributed to the Surge Alone. The latest reports say that the War on Terror costs about $12 billion per month, of which about $10 billion per month is for Iraq.  A year ago the cost of the war in Iraq was reported at about half that, $5 billion per month.  Clearly war costs are going up, but the large increases cannot be explained by the surge alone.

• Coyle Testified the Funding for the War Was Fraught With Errors from the Start. In his written testimony, Coyle reference a Congressional Research Service Report that claimed the “DOD does not count about $7 billion from its FY2003 regular appropriations act that was intended for [the Global War on Terror] but that it cannot track.”

• Coyle Testified the Pentagon Changed the Definition of ‘War Costs’ To Suit Its Needs. According to Coyle’s written testimony, the DOD changed its definition for which costs are counted in the Global War on Terror and which are not.  Coyle wrote, “Just a year ago, on October 25, 2006, Deputy Secretary of Defense Gordon England changed the definition so that the Military Departments now are to include costs for the “longer war on terror” rather than those strictly required for war operations in Iraq. For the entire previous decade, the Services had only reported those war costs “that would not have been incurred had the contingency operation not been supported” and “only if the expenditures were necessary to support a contingency operation.” Since the budgetary needs of the “longer war” are not known, it is difficult to tell what costs might be included under the new counting rules instituted a year ago.”

Highlights from the Submitted and Oral Testimony of Barry Godfrey, Former Employee of Iraq Contractor Kellogg Brown and Root:

• Whistleblower Barry Godfrey Witnessed Two Incidents In Which Taxpayers Were Overcharged By Millions of Dollars For Supplies. On one occasion, according to Godfrey, he was asked by his superiors execute a change order for in excess of $4 million dollars for refrigeration trucks in Mosul.  The alleged change involved the subcontractor, Gulf Catering Company (GCC). When Godfrey discovered that this had not been approved by anyone with required authority, he reviewed the costs and found the subcontractor price was totally unsupportable.  When Godfrey informed his superiors, he claimed his job was threatened because he was “out of [his] lane.” After the incident with the trucks, Godfrey did a full analysis of GCC contracts in his section of Mosul.  After reviewing financial history from February 2004 to October 2004, he found GCC had been paid as if it were serving 5,500 troops versus an average of 1,000.  This represented an overcharging of $3.5 million to $5.3 million over the period of March 2004 to Sept 2004.

• Godfrey Claimed KBR Was Complicit in a Fraudulent Overpayment of $2 Million to A Subcontractor. According to Godfrey, Kuwait Subcontractor, ABC Group, attempted to charge $2 million dollars for a new staff camp which was clearly previously contracted for.  They also attempted to charge for new equipment which also was previously covered under contract. Godfrey said this activity took place in December 2004 and KBR along with ABC took advantage of the situation to create and get approved a totally fraudulent change order worth an additional $2 million dollars over and above the requested camp costs of $2 million.  According to Godfrey, his managers approved payment concurrent with the award, which, according to Godfrey was illegal. 
• Godfrey Testified Iraq is Riddled With Waste and Abuse Throughout the Contracting System. Godfrey testified, “I think it was widespread throughout the system.  We had some good contractors, but in the large, there were issues with the majority of the contractors.” [Testimony of Barry Godfrey before Democratic Policy Committee, 12/7/07]

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