July 10, 2008, Washington, DC – The Pentagon’s oversight of Houston-based KBR’s work in Iraq and Afghanistan has been “irregular and highly out of the ordinary,” a former Army contracting official told Senate Democrats Wednesday.
Charles Smith, the former chief of the Army Field Support Command with responsibility for overseeing KBR’s massive contract with the Army, contends he was forced out of his job in 2004 for objecting to the Pentagon’s treatment of KBR.
“The interest of a corporation, KBR, not the interests of American soldiers or American taxpayers, seemed to be paramount,” Smith told the Democratic Policy Committee, a Democrats-only panel.
Dan Carlson, a spokesman for the Army Sustainment Command, acknowledged that Smith was reassigned within the command. Smith later retired.
Carlson said Smith’s allegations are “under investigation by appropriate authorities within the Army.”
KBR, the largest military contractor operating in Iraq, builds bases, serves meals and provides a host of other support services for U.S. troops. To date, the company has been paid nearly $26 billion for its work under the contract, Army officials say.
During his tenure, Smith said, he saw KBR submit more than $1 billion in billings to the government that lacked the necessary documentation to merit reimbursement.
KBR had come under particular criticism for its bills for providing meals at base dining halls. The Pentagon’s own auditors, the Defense Contract Audit Agency, objected to $200 million worth of billings, Smith said. But rather than pursue the issue, the Army agreed to change the contract, effectively barring the government from going after that money.
“It was at least a $200 million relief for KBR,” Smith said.
KBR spokeswoman Heather Browne, in a prepared statement, said the company “remains committed to providing high-quality service to our customer and conducting our business with ethics and integrity.
“The company in no way condones or tolerates anything to the contrary. When questions have been raised about our work, we have fully cooperated with the government in providing information requested of us. We remain committed to finding quick resolution to issues when they arise.”
Smith argued that rather than tighten control over the contract when billing issues arose, Army officials waived rules that would have allowed the government to withhold 15 percent of expected reimbursements until KBR provided the necessary documentation.
Sen. Byron Dorgan, D-N.D., Democratic Policy Committee chairman, noted what he called “a concerted effort in the Pentagon to award huge contracts to certain companies and to protect it at all costs.”
Smith said the Pentagon essentially “outsourced” oversight of the contract to a firm called RCI, later acquired by Virginia-based Serco.
Serco spokesman Steve McCarney said the firm does not oversee any contractor.
“We simply provide independent economic cost analysis to our client, which is the U.S. Army,” McCarney said.
Carlson, the Army Sustainment Command spokesman, pointed to improvements in recent years, including deploying contracting officers overseas, establishing a requirement review process and improving contractor business systems to better meet the standards of the Defense Contract Audit Agency.
Underlying discussion of KBR’s treatment by the Army was apparent concern among at least some at the Pentagon that the company would, if pushed too far, withdraw from Iraq. That would have dealt a huge blow to a war effort heavily dependent on the work of private contractors.
Smith discounted that notion, saying KBR would not risk its corporate reputation — and its business as a military contractor — by deserting the troops in the field.
After the hearing, Smith said that while he oversaw KBR’s contract, he occasionally heard from midlevel KBR officials complaining about cash flow and warning that the company might fail to complete tasks assigned under the contract. These calls, however, invariably were followed by assurances from higher-level managers of the company’s commitment to the contract, Smith said.