From the NYT:
"The Army official who managed the Pentagon’s largest contract in Iraq says he was ousted from his job when he refused to approve paying more than $1 billion in questionable charges to KBR, the Houston-based company that has provided food, housing and other services to American troops.
The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.
Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”
But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR’s claims — approved most of the payments he had tried to block."
The obvious way to read this is as indicating that Halliburton had the connections to block any investigation of its recordkeeping. And while that's true, I'm not sure that's what's going on here. The next paragraph of the NYT story:
"Army officials denied that Mr. Smith had been removed because of the dispute, but confirmed that they had reversed his decision, arguing that blocking the payments to KBR would have eroded basic services to troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services."
In fact, KBR did at one point threaten to stop providing basic supplies -- little things like food -- to our troops in Iraq. (I've put the account of this episode below the fold.) What that means is, to my mind, even more scandalous than simple corruption by a company with good connections. It means that we have outsourced absolutely critical functions to private companies, companies which, unlike military personnel, can threaten to stop doing their jobs without facing courts-martial. In wartime, when a company is doing something as important as providing food to our troops, the military has no choice but to cave to their demands. (That's one reason I said it was more scandalous than simple corruption: it virtually ensures that that corruption will occur, while simultanously leaving our troops at risk.)
To my mind, we should not allow any company to assume any critical function in wartime without putting in place some guarantee that it will go on performing that function whether it wants to or not. If it's impossible to do that legally, then that function should not be outsourced. Period. We cannot allow any private company to threaten to stop supplying our troops during wartime. But we have.
Here's a description of the episode I referred to. It's from Betraying Our Troops: The Destructive Results of Privatizing War, by Dina Rasor and Robert Bauman.
"The Army's logistics contract manager at the camp could not believe what he was hearing. A KBR manager reponsible for supplying the troops in this camp with food, water, and all other services and supplies had just threatened to stop KBR's work at Camp Speicher -- to stop cooking and feeding the troops, to stop supplying the troops outside the base -- unless the Army paid KBR's submitted invoices.
Granted, his company, KBR, a subsidiary of Halliburton, was operating "at risk" by overrunning its budgeted spending and had been late in sending its invoices to the Army. And the Army was slow in paying becasue of its concerns over the accuracy of the company's invoices. Even so, the KBR manager had just threatened the Army brass that his employees were going to stay in their housing containers and do nothing until the money was paid. Essentially, this would amount to a work stoppage, or labor strike, on the battlefield -- perhaps the Army's biggest fear regarding the Pentagon's new experiment of having private contractors supply the basic needs of its troops on the battlefield.
The Army manager and his assistant wondered if KBR could really do this. If soldiers or officers tried to pull this same stunt in the old Army, the general would court-martial them, and they could be sent to prison. However, according to federal contracting rules, a company has the right to stop work if that company is risking a large amount of its own money and the government is unable to pay due to funding problems. Clearly, wartime conditions should be an exception when soldiers' lives are on the line, but there is no legal basis for a general to force a company's employees to work beyond the contracting rules. The company or its employees can stop work or go home, and there is nothing that military commanders can do about it, except seek drawn-out legal-contract remedies in the courts back in the United States.
The Army logistics contract manager and the camp's general officer faced the disaster of having to explain to their men, their superior officers, and the public that there might not be any food, water, or other vital supplies the next day because the Army didn't have a backup plan. Since the Army had outsources these traditionally Army-provided services to one company, they did not have any choice. The Army was short of troops, so there were no back-up soldiers to take on these tasks.
KBR ended up working the next day because the Army ultimately relented and agreed to come up with new money to pay its invoices. But this was not the first or last time the company would threaten the Army with work stoppages. It was like negotiating with the only plumber within a thousand miles when your basement is filling with water. KBR was in the driver's seat, and the company knew it."