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March 28, 2009

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I was going to try some crazily funny twist on the underpants gnome thingy, but it didn't work out, and it's a sad topic. I hope you all appreciate my honesty.

1. Receive contract with fat profit margin already built in.

2. Slash costs by failing to train or supervise local workforce.

3. PROFIT!

yah, the gnomes thing doesn't really work. also note number 4.

4. Sell off troubled subsidiary and relocate parent corp, and its senior executives, to Dubai.

Hilzoy - Clearly you don't watch CSI: In a recent episode the homicides were caused by ground squirrels chewing through wiring. Surely there are millions of desert ground squirrels in Iraq, no?

Seriously, if there aren't major prosecutions that come out of this outrage, then the JAGs and Justice aren't doing their job.

I had 5 electrical fires in my maintenance bay in Iraq. The problem for us was that we were required to use local sources for both labor and material when possible (and contracted that way). This is a reasonable requirement given that establishing an economy and creating jobs is a key part of the mission, but it definitely made it difficult to meet US standards.

After each fire we called the contractor (not KBR) to get it fixed, and they would come in and replace the fixture and check various things, and tell us it was good, but a week or so later, we would have something else catch fire.

After the 5th fire occurred in my arms room that was full of explosives, I was finally able to get an American electrician from KBR to come in and replace the parts with UL listed parts. Essentially we had local purchase flourescent lights that had plastic that was touching overheated ballasts, and mismatched parts that kept catching fire. The KBR guy even did it for free, since my command, for some reason, did not allow any KBR contracts.

My conclusion from the experience was that there were competing interests that kept us from getting quality electrical work: it cost much more to have a US electrician and parts shipped from the states (almost everything in the Iraqi market seemed to be counterfeit, so even local purchasing name brands was no guarantee), and we wanted a jobs and commerce program, and we also wanted the construction fast.

This is not to excuse shoddy work, particularly when it has been identified and reported several times and then kills someone, but I think it may mitigate and explain why at least in the case I am familiar with it is not as simple as wiring the subdivision down the block.

"In a recent episode the homicides were caused by ground squirrels chewing through wiring."

Homicides?

Gary - Well they thought they were homicides. And people were killed.
But not by another person.
[:::grumbles::: and I nitpick language for a living...]

I was thinking maybe they were trained ninja squirrels.

How much more of this can we take? Every time we turn around we read of another horrific example of how America is embarrassing itself.

We used lies to invade a country that was no real threat to us, we've tortured detainees and imprisoned them for years without charges, in Iraq we've allowed billions of dollars in cash to be stolen from us without any accountability, and now we see that we allowed contractors to do work described by a top inspector as "some of the worst electrical work I've ever seen" putting thousands of troops at serious risk of death, and costing the taxpayers millions to fix it.

Not only that but we've allowed our financial services sector to nearly bankrupt our country, and now we hear from Sen Webb that our criminal justice system is a disgrace. We are one of the few countries that still kills criminals.

These are just the highlights. I could add Katrina, the bombed out look of whole neighborhoods in rust belt cities, and dozens more. So could you.

Seriously, what has happened to our country? Am I exaggerating? Am I overly critical? I don't think so. But it feels like Uncle Sam has turned into a skid row drunk who is about to hit bottom. Does he have the will and capacity to recover?

(FWIW, I lay much of the blame on the Reagan "revolution.")

I'm betting the KBR jobs were not done by local labor, but by near- or actually-enslaved South Asian labor, such as was used to construct the ghastly "embassy" (the work of a Lebanese-owned Kuwaiti company that either paid someone in the Bush-Cheney regime a lot of money and/or is doing them big favors in the region.

The parts are probably genn-you-wine U.S. of A. electrical equipment (or as close as we get these days: brand name stuff made in China). It's the wiring itself that ain't right.

I'm imagining that with sufficient scrutiny, KBR's perfectly capable of carrying off the new electrical distribution center contract flawlessly. This time they'll just spend something like close to what it costs to do the job right. They've already ripped off plenty, after all; no point pushing things to the point of risking future contracts.

jrudkis - ah, thank you for the extra context, and that makes sense. (While not explaining nor excusing).

For comparison, the internet tells me 411 people (0.63 per million) died from electrocutions in the US 2001 (US Consumer Product Safety). At work it was 0.23 per 100,000 in '92-'99. http://www.wrongdiagnosis.com/e/electrocution/deaths.htm
http://injuryprevention.bmj.com/cgi/content/full/8/4/306

The bit that set off my alarm bells, tho, was the "re-opened" investigations. I'd say there's some stories tucked away in that word.

There was a picture from Iraq on the Rachel Maddow Show some time ago that looked innocent on first view. But then one could notice that the voltmeter held into the tap water showed a rather high value.
If the KBR leadership washes its hand of it, it should be using one of those taps.

Receive contract with fat profit margin already built in.

As deplorable as KBR's record is, I don't think "fat profit margin" is in any way accurate, unless you've got a cite that says otherwise. If memory serves, their profit margin is something like 5%.

it cost much more to have a US electrician and parts shipped from the states

It seems like that is exactly what security procedures oblige them to do when building/renovating embassies; making that an extremely slow and expensive process (and enormously profitable for the well-connected contractors and suppliers).

This might be one reason why the new embassy in Baghdad is supposed to have cost around $2B, although the people I know living in it now seem to put up with frequently malfunctioning water, electricity and so forth.

To be far to local contractors and suppliers who are bilking the DoD, they're only doing what US companies do on a much larger scale.

As deplorable as KBR's record is, I don't think "fat profit margin" is in any way accurate, unless you've got a cite that says otherwise. If memory serves, their profit margin is something like 5%.

Obviously I have no proof for this, but given that construction in non -war torn, heavily regulated countries for private clients with a keen eye is full of hidden profit and cost-shaving, I would be very surprised if a big contractor working for the government in a place like Iraq has limitless ways to create more money than the IRS can see (short of a proper audit I suppose).

I was going to try some crazily funny twist on the underpants gnome thingy, but it didn't work out, and it's a sad topic.

1. Have the CEO of your parent company nominate himself for VPOTUS.
2. ?
3. Profit!

If memory serves, their profit margin is something like 5%.

Of $16 billion. That's $800 million, profit. Not bad.

And note the headline of the cited article.

"In a recent episode the homicides were caused by ground squirrels chewing through wiring."

Homicides?

Ground squirrels are hostile, psychopathic SOBs. Crafty, too.

To be far to local contractors and suppliers who are bilking the DoD, they're only doing what US companies do on a much larger scale.

My two cents -- constructing military bases in theater shouldn't be contracted out to private companies.

Call me crazy.

Not bad.

I think profit margins in private business are substantially higher. Sure, they're not making it from taxpayer dollars, but there are limits to how low profit margins can go, before it's just no longer worth the corporate attention. Maybe that number isn't $800 million; I honestly don't know.

Still, there are corporations out there earning WAY higher profit margins. Google, for instance. Amazon. Microsoft. I don't think 5% profit margins are considered "fat".

Oh, here's an article from a few years ago, courtesy of the Minneapolis Star-Tribune:

Byline: Eric Wieffering; Staff Writer

No matter how you measure it, Exxon Mobil's 2005 profit of $36.1 billion - think $99 million a day, or $68,683 per minute - is a lot of money.

Big enough to draw intense political heat and renew suspicion that big oil companies are manipulating energy markets to ensure fat profits.

But by another measure, profit margins, Exxon's performance was an ordinary 10 percent, close to its historic average. Exxon's annual revenue was $371 billion, but it needed to make $1 in sales to book 10 cents in profit.

Compare that with the likes of Microsoft, which earns 29 cents on every dollar of revenue. If the software maker had the same ...

So: 10% is fairly innocuous as far as profit margins go. Gross profit can be huge, even if the profit margin is modest.

That was pretty much my entire point. Hack KBR for profits all you want, but I think their profit margin is fairly small.

Last time I checked on KBR's activities in Iraq, which was two or three years ago IIRC, they were running at a loss, or very close to a loss.

And yes, there might be ways for KBR to be hiding income, padding expenses, etc. I have no idea whether they're actually doing those kinds of things, though. The division that administers the LOGCAP work is consistently booking less than 5% profit, though. 3.9% in 2005, 5% in 2006, 4.6% in 2007. No idea how they did last year, though. I think that in 2004 that segment of the company dipped under 1% profit margin.

This is all information from their annual reports, which aren't quite as detailed as you'd want them to be.

That was pretty much my entire point. Hack KBR for profits all you want, but I think their profit margin is fairly small.

Fair enough.

Last time I checked on KBR's activities in Iraq, which was two or three years ago IIRC, they were running at a loss, or very close to a loss.

That could well be true. I'm sure it's astoundingly expensive to carry out large construction projects in an active theater of war. Very high risks, also.

As noted above, I'm not sure it's a proper job for a for-profit private company.

As noted above, I'm not sure it's a proper job for a for-profit private company.

I'm a little conflicted about that, myself. Maybe KBR just has somehow put on a +5suck nodrop noremove.

I'd forgotten that Halliburton shed KBR a few years back. Maybe they saw this or some unspecified badness coming, and decided to cut them loose.

BTW, I don't think anyone is suggesting that KBR or any other contractor shouldn't make a profit.

If I call a local electrician to fix something in my house, I expect him to charge me enough for parts, labor, and his knowledge that HE makes a profit.

But I also expect the work do be done properly to code, and that I won't get bleeping electrocuted when I turn on the power!

Sure, that's obvious; but there is so much (earned) antipathy here for KBR that I think some people lose sight of the basics.

So, why does the United States government continue to do business with these organizations? Until we stop: KBR, Halliburton, others, we will continue to be ripped off.

As noted above, I'm not sure it's a proper job for a for-profit private company.

I think this is a fair question. During the "Peace Dividend" of the 90s, there was a conscious decision to outsource the skills needed for this type of work. Essentially, the belief was that it was cheaper to pay private companies when you need the skills, then it is to maintain them when you don't need them.

When we went from a 750k soldier army to 480k, many of the cuts came in this type of logistic support. Recreating this skillset in the Army will take a long time, and require a much bigger Army than we currently have.

My personal opinion is that despite the problems, soldiers get better conditions and services from private companies than if the Army did this work itself: I always prefer private contractor mess halls to army run mess halls, for instance. But I can certainly see the policy reasons for not choosing to contract essential wartime services.

Slart, assuming that the 5% margin is correct, there's another difference between that and the margins made by other businesses. As I understand it, the contracts are cost plus, which means that the profit margin is guaranteed. That lack of risk is important, and worth a lot.

Slart, assuming that the 5% margin is correct, there's another difference between that and the margins made by other businesses. As I understand it, the contracts are cost plus, which means that the profit margin is guaranteed. That lack of risk is important, and worth a lot.

That's possible. But this is a LOGCAP contract, which is indefinite-delivery, indefinite quantity contract. In other words, it isn't a contract for a fixed task over a fixed time period.

So of course it's CPFF. I don't know any other way to do an open-ended contract like that. It's telling, though, that for a while at least, they didn't earn any award fees. If it were cost-plus-award-fee, which as far as I know doesn't exist, they'd have gotten nothing at all to show for their work.

Again, this says nothing about their actual performance, which appears to have been rather dismal, if not criminally negligent.

But I can certainly see the policy reasons for not choosing to contract essential wartime services.

To me, personally, the list of policy reasons begins with:

"I'm sorry, but at this time it's no longer in the best interest of our shareholders for us to provide logistical support for your army. Thanks for your business, and I hope we can work together in the future!"

To that, I add the numerous perverse incentives it creates for starting and continuing wars.

IMVHO there just are some functions that are unwise to outsource. Most or all hands-on operations of warfare and national defense are, again IMVHO, among them.

"I'm sorry, but at this time it's no longer in the best interest of our shareholders for us to provide logistical support for your army. Thanks for your business, and I hope we can work together in the future!"

Sure, but some of that is codified in law to prevent such outcomes. For example, I believe that FEDEX and like carriers are bound to provide their transporation assets for the military during wartime, and there are various systems in place to make that happen, including government guarantees on some loans, as well as passenger airline agreements to provide excess capacity to FEDEX for its business when we take their planes.

The alternative is to have a lot of excess capacity sitting around when we don't need it.

Systemically, it is probably not really that different than the Merchant Marine function.

I suppose we could do it in reverse, and have a government run system that maintains those skills and works on civilian projects during peacetime, and then is ready for war...so instead of having the Corps of Engineers contract out all of its work in the states, we would just have a big enough corps to do the work itself. We could have Army transportation assets compete with civilian truckers for commercial loads, ensuring we have enough assets and trained drivers. Generally the military is prohibited from doing commercial work, but we could change that to support the necessary infrastructure in peacetime.

And it probably would not increase the likelihood of war, since in order to go to war we would be stripping those assets from the civilian economy in a more direct way than having KBR hire away drivers or construction workers piecemeal from other civilian contractors.

Systemically, it is probably not really that different than the Merchant Marine function.

If I understand the details correctly, the Merchant Marine comprises a fleet of ships that are owned and crewed by US citizens and are registered in the US. During wartime, civilian mariners are brought under military control, and are subject to military discipline including courts martial. Mariners who serve during wartime are, since Reagan, eligible for veterans' benefits. The US operates a military academy specifically for training merchant marine officers.

If we want to extend that kind of thing to other areas of defense logistics, I don't mind. FWIW.

And it probably would not increase the likelihood of war

Anything that increases the likelihood that someone will make a lot of money from a war increases the likelihood of war.

Trust me on that.

Anything that increases the likelihood that someone will make a lot of money from a war increases the likelihood of war.

I agree, what I was referencing was having a stronger military capacity by displacing civilian contractors in the civilian commerce stream: having army long haul truckers deliver for Walmart would provide the infrastructure for war, but the cost of losing that capacity in order to wage war would make the war less likely.

On the Merchant Marine, I agree as well, and I tried to get that model put on the private security contractors "nationalized" and therefore subject to UCMJ like the merchant marine (I was briefly on the defense department review for that). No one listened...

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Whatnot


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