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Iraq Contractor KBR Cited by Oversight Commission

August 11, 2009 (Associated Press) WASHINGTON - An independent panel examining waste and fraud in wartime spending accused contracting giant KBR Inc. on Tuesday of resisting government oversight and failing to cut costs on support work in Iraq.

During a hearing held by the Commission on Wartime Contracting, KBR defended its performance, telling the panel the company was under heavy pressure to meet the urgent demands of military commanders.

KBR's internal accounting and cost estimating systems have been inadequate since 2005, commissioners said, leading to questionable billings and drawn out arguments with federal auditors over hundreds of millions of dollars in charges.

Commissioner Dov Zakheim said KBR's top managers meet regularly with the Defense Contract Audit Agency. Yet the company has been unable to come up with solutions that satisfy the agency. By comparison, other large contractors, such as Dyncorp International, seem to work out their problems quickly, he said.

"Are you guys stonewalling?" asked Zakheim, a former Pentagon comptroller.

William Walter, KBR's senior vice president for government compliance, said the company was incurring expenses for the work it was doing in Iraq at the same time auditors were poring over the company's cost projections, a situation prone to confusion and disagreements.

"It's a vicious cycle that we were stuck in," Walter said. He described the disagreements over contract charges as "differences of judgments."

KBR is the primary support contractor in Iraq, providing troops with essential services, including housing, meals, mail delivery and laundry. The company has been paid more than $32 billion since 2001.

But in a prior report, the commission said billions of dollars of that amount ended up wasted due to poorly defined work orders, inadequate oversight and contractor inefficiencies.

Commissioner Charles Tiefer said KBR is keeping more employees in Iraq than it should in order to keep charging the government for work even as U.S. forces are drawing down.

In late January, Army Gen. Ray Odierno, the top U.S. commander in Iraq, ordered military units to begin cutting U.S. contractors by 5 percent each quarter and to hire Iraqis instead.

Tiefer, a professor of government contracting at the University of Baltimore Law School, said figures he's compiled show KBR's personnel rates in Iraq are declining more slowly than others.

"They're slow rolling the drawdown," he said.

Walter said much work remains to be done in Iraq even as the U.S. presence is decreasing. That includes shutting down bases and housing units.

Commissioners also faulted KBR for building a $30 million dining facility at a U.S. base in Iraq shortly after the company had renovated the base's existing mess hall at a cost of $3.36 million.

The panel wanted to know whether KBR tried to tell the military the new facility was unnecessary, especially with American forces scheduled to be out of Iraq by the end of 2011.

Walter said the renovation work and the new facility were two separate contracts from two different Army agencies, evidence of the need for government to speak with "one voice."

"And nobody from KBR went to anybody senior in the Army and said, 'What in God's name are you doing?'" Zakheim said.

Walter said KBR does what it is told to do by the customer.

Commissioner Linda Gustitus asked Walter whether the company has been criticized by government officials for not proactively seeking cost savings.

Walter didn't answer immediately.

"The answer is yes, by the way," Gustitus said.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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