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Contractor Could Lose $400 million
By Jay Price
The News & Observer
Friday 02 March 2007
Military contracting giant KBR Inc. could be docked up to $400 million for
improperly using private security companies in Iraq, the company disclosed this
week.
The Army has already said it withheld about $20 million in payments to KBR's
parent company, Halliburton, because the company's subcontractors used private
security contractors, including North Carolina-based Blackwater USA. Army officials
have said that private security companies were not allowed under Halliburton's
main contract in Iraq and that the military was to provide security.
The Army began looking into the use of private security firms by KBR's subcontractors
after a congressional investigation sparked by a series of stories in The News
& Observer. KBR has won billions in contracts to provide troops in Iraq
with basic needs.
In its annual report to the Securities and Exchange Commission on Wednesday,
KBR said the Army was continuing to review its contract and that it would begin
withholding more payments unless the company "can provide timely information
sufficient to show that such action is not necessary to protect the government's
interests." If KBR fails, it could lose $400 million in Army payments,
although the actual losses could be lower, according to the report.
KBR contends that its Army contract does not prohibit subcontractors from hiring
private security services. It's unclear how many security companies might have
worked under the KBR contract, but it's certain that Blackwater was not the
only one.
In 2004, The N&O investigated Blackwater's work in Iraq and the deaths
and public mutilation of four of its workers in Fallujah. Prompted in part by
the articles, U.S. Rep. Henry Waxman, a Democrat from California who now heads
the House Oversight and Government Reform Committee, started an investigation
into how layers of subcontracts in Iraq add to the Pentagon's costs and limit
its ability to oversee the work.
It was during a hearing of Waxman's committee last month that a top Army contracting
official revealed that the Army had decided to withhold $19.6 million in payments
to KBR. Waxman released a statement Thursday saying that the Army's decision
showed why Congress must keep an eye on Pentagon contracts.
"Our investigation might mean a savings of hundreds of millions of dollars
for taxpayers," Waxman said. "It would have been better if the money
had never been wasted in the first place, but there's at least a chance now
to fix this expensive mistake."
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