...Representative Henry Waxman, a Democrat from California, is in high dudgeon lately, suggesting that Vice President Dick Cheney's former chairmanship of Halliburton gave KBR the inside track on the Iraqi oil-fields contract, which could be worth as much as $7 billion. But the reality is subtler: KBR didn't need any help. It is by now so enmeshed with the Pentagon that it was able essentially to assign the contract to itself.
KBR was founded in 1919 as Brown & Root, and quickly acquired a reputation for taking on the kinds of projects that tend to recall the building of the pyramids. It constructed the gigantic Mansfield Dam in Texas, New Orleans's 24-mile Lake Pontchartrain Causeway, Colorado's Eisenhower Tunnel and the Johnson Space Center, among many other mega-projects. Halliburton acquired it in 1962, and in 1998 merged it with the petrochemical company M.W. Kellogg to form Kellogg Brown & Root. KBR now accounts for almost half of Halliburton's annual $12.5 billion annual revenue.
The Army says KBR got the Iraqi oil-field contract without having to compete for it because, according to the Army's classified contingency plan for repairing Iraq's infrastructure, KBR was the only company with the skills, resources and security clearances to do the job on short notice. Who wrote the Army's contingency plan? KBR. It was in a position to do so because it holds another contract that is poorly understood yet in many ways more important, and potentially bigger, than the one to repair the oil fields: the Logistics Civil Augmentation Program, or Logcap, which essentially turns KBR into a kind of for-profit Ministry of Public Works for the Army. Under Logcap, which KBR won in open bidding in 2001, KBR is on call to the Army for 10 years to do a lot of the things most people think soldiers do for themselves -- from fixing trucks to warehousing ammunition, from delivering mail to cleaning up hazardous waste. K.P. is history; KBR civilians now peel potatoes, and serve them, at many installations. KBR does the laundry. It fixes the pipes and cleans the sewers, generates the power and repairs the wiring. It built some of the bases used in the Iraq war.
Writing the oil-field contingency plan was only one of a thousand things KBR did for the Army last year under Logcap. (KBR has a similarly broad contract with the Navy, under which it built, among other things, the cages for suspected terrorists at Guantanamo Bay.) The technical term for Logcap is ''cost-reimbursement, indefinite-delivery/indefinite quantity,'' or ''cost-plus,'' meaning KBR spends whatever it believes necessary to get a job done, then adds from 1 to 9 percent as profit. There's practically no limit on how lucrative Logcap can be, and as the awarding of the Iraqi oil-field contract -- by KBR, to KBR -- demonstrates, Logcap can become a generator of yet more contracts. Nothing like it exists elsewhere in government. That KBR wrote the oil-field plan wasn't considered by the Army a disqualifying conflict of interest -- in fact, just the opposite. ''They were the company best positioned to execute the oil-field work because of their involvement in the planning,'' said Lt. Col. Gene Pawlik, an Army spokesman.
The military has relied on civilian contractors ever since George Washington hired farmers to haul supplies for the Continental Army, and the use of mercenaries is as old as time. But the KBR-style blending of corporations into the fabric of the military is relatively recent. Its genesis is one of the unsung but seminal ideological documents of the Reagan era, a revolution-on-paper that goes by the dry title Circular No. A-76. Issued in 1983 by the budget director, David Stockman, A-76 mandates that government should ''rely on commercial sources to supply the products and services the government needs.''
Circular No. A-76 wasn't written specifically for the Defense Department, and the military was slow to adopt the approach. It took the end of the cold war for the Pentagon to discover the benefits of outsourcing. The times demanded that the military shrink -- remember all the talk about a ''peace dividend''? Oddly, though, the end of the cold war uncorked a froth of conflicts from Africa to the Balkans that the military had to monitor and, in the case of the former Yugoslavia, fight. By one count, the Army has deployed soldiers more than three times as often in the 14 years since the cold war ended than in the cold war's four-decade history, even though it is today down to only two-thirds the size of its cold war peak.
Downsizing the military not only meant doing more with less; it also meant that a lot of former soldiers, sailors, airmen and officers were suddenly on the street looking for the kind of work for which their particular skills would be valuable. The Pentagon still needed those skills. So the downsized warriors joined a constellation of corporations that sold those skills -- everything from data processing to interrogation to bomb disposal -- back to the military at private-sector prices.
In 1992 the Defense Department, under Dick Cheney, hired Brown & Root to write a classified report detailing how private companies could help the military logistically in the world's hot spots. Not long after, the Pentagon awarded the first five-year Logcap -- to Brown & Root. Then Bill Clinton won the election, and Cheney, in 1995, became C.E.O. of Halliburton, Brown & Root's parent company. A lot of Halliburton's business depends on foreign customers getting loans from U.S. banks, which are in turn guaranteed by the government's trade-promoting Export-Import Bank. In the five years before Cheney took the helm, the Ex-Im Bank guaranteed $100 million in loans so foreign customers could buy Halliburton's services; during Cheney's five years as C.E.O., that figure jumped to $1.5 billion.
''Clearly Dick gave Halliburton some advantages,'' a Halliburton vice-president, Bob Peebler, told The Chicago Tribune in 2000. ''Doors would open.''
Doors continue to swing freely between the corporate boards of companies like KBR, whose livelihood depends on U.S. energy and military policy, and the upper echelons of government, where those policies are set. In addition to its connection to Dick Cheney -- who as vice president continues to be paid ''less than $180,000 a year'' in deferred compensation by Halliburton, according to a company spokeswoman -- Halliburton has on its board former Secretary of State Lawrence Eagleburger, who also sits on the board of Phillips Petroleum alongside a former chairman of the Senate Select Committee on Intelligence, David Boren. Among the vice presidents of Booz Allen Hamilton -- another does-everything company that has received millions in military contracts -- is the former Director of Central Intelligence James Woolsey. Of the 30 members of the Defense Policy Board -- the influential Pentagon advisory panel from which Richard Perle was recently forced to resign -- at least nine are directors or officers of companies that won $76 billion in defense contracts in 2001 and 2002, according to the Center for Public Integrity. Lieut. Gen. Jay Garner, who served as chief civilian administrator of Iraq, ran a subsidiary of L-3 Communications that makes missile systems used in the Iraq war; and L. Paul Bremer III, who took over from Garner, was plucked from a new unit of the insurer Marsh & McLennan that was created a month after 9/11 to profit from the new concern over catastrophic risk.
''I am unabashedly an admirer of outsourcing,'' Army Gen. Barry McCaffrey told The Dallas Morning News three years ago. ''There's very few things in life you can't outsource.'' McCaffrey now serves on the boards of the weapons makers Raytheon Aerospace and Integrated Defense Technologies, among others.
It's a relatively small club that has both guided U.S. military, energy and Middle Eastern policies over the past three decades and then run the corporations that benefit from those policies. And it's a club that had a long history with Saddam Hussein. A sheaf of declassified 1980's State Department cables demonstrate that in 1983 Secretary of State George Shultz -- former president of Bechtel -- sent Donald Rumsfeld to meet personally with Saddam Hussein several times, in part to promote an oil pipeline to the Red Sea port of Aqaba. (The accompanying State Department photo of the two men warmly shaking hands is startling, given the recent vitriol between them.) In the midst of negotiations with Rumsfeld, Hussein used poison gas against the Iranian Army. While cables demonstrate the State Department discouraged this, a memo to Eagleburger, then the under secretary of state, noted it may have been American firms that sold Hussein the gas, and outlined the need ''to avoid unpleasantly surprising Iraq'' with public statements.
By July 2000, Cheney claimed on ABC's ''This Week'' that neither Halliburton nor its subsidiaries dealt with Iraq at all. ''Iraq's different,'' Cheney said at the time. ''I had a firm policy that we wouldn't do anything in Iraq, even arrangements that were supposedly legal.'' But in fact from 1997 to 2000, when Cheney was running Halliburton, two of its subsidiaries sold Saddam Hussein's government a total of $73 million in oil-field supplies. The deal didn't violate U.S. sanctions because the subsidiaries, Dresser-Rand and Ingersoll Dresser Pump Company, were foreign.
KBR/Halliburton, then, has rounded the bases when it comes to Iraq. It got rich doing business with Iraq, it got rich preparing to destroy Iraq and it's now getting rich rebuilding Iraq....
[The full text of the article is available at <http://www.nytimes.com/2003/06/22/magazine/22BROWN.html>.] ***** -- Yoshie
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