Halliburton's Iraq gravy train

A former procurement specialist for the giant, White House-connected company charges that it failed to seek out competitive bids -- enriching itself and costing taxpayers tens of millions of dollars extra.

By Farhad Manjoo

Feb. 27, 2004 | Halliburton Corp.'s latest image-rehabilitating television commercial begins with a narrator wistfully declaring, "When I joined Halliburton, I knew I was going to work on some big things." At Halliburton, the narrator explains, people are constantly trying to improve the lives of others. They fight oil-well fires, they bring supplies to stranded troops. "We built bridges, schools, all over the world." And that's not even the best part. "The biggest thing?" the narrator asks as the screen flashes to a group of smiling Halliburton employees dishing up hot meals to American GIs. "Serving our troops good ol' American food, so they'd feel just a little closer to home. Yeah."

It's a nice image. But to Henry Bunting, a veteran procurement specialist who worked for Halliburton's subsidiary Kellogg Brown & Root in Kuwait last summer, this saccharine picture of Halliburton as a beneficent do-gooder doesn't ring true. According to Bunting, Halliburton's personnel in the Middle East weren't looking out for the government as much as they were looking out for the company. Bunting, who has recently been telling his story to congressional Democrats, says that Halliburton, which has been awarded billions of dollars of contracts for work in Iraq, routinely purchased the most expensive equipment and services on the government's tab. Bunting claims that Halliburton managers frowned on any attempts to save the military any money. They had no incentive to do so: taxpayers would pick up the cost. In fact, they had an incentive to bill high: the more they spent, the more money their company would make.

Bunting worked as a buyer for Halliburton's "Logcap" contract with the U.S. Army, a $3.7 billion deal under which Halliburton provides the military with logistics support -- it builds bases, runs mess halls, does the laundry, supplies water and performs dozens of other tasks necessary to keep the Army running. The contract is a "cost-plus" contract, meaning that the military reimburses Halliburton for all of its expenses, and then gives it an extra percentage as a profit. Experts have long criticized cost-plus contracts as being economically inefficient; companies that work under cost-plus deals have no reason to reduce their expenses, meaning that the government may end up paying more than it should for services.

To keep costs down, firms that have been awarded cost-plus contracts pledge to open their processes to competitive bidding, making sure that they're getting low prices on equipment they use. Halliburton says that it complies with all federal requirements regarding competitive bidding. But according to Bunting, this is where Halliburton fell short; it constantly failed to seek low prices in its operations, violating the spirit, if not the letter, of its contract with the government. Bunting says that even though his job was ostensibly to get the best deals on equipment for the Army -- everything from office chairs to medical supplies -- his managers often told him, "Don't worry about the price, it's cost-plus." Supervisors urged buyers like him to keep their orders under $2,500, Bunting says, because orders for more than that amount would need to be submitted to multiple vendors for competitive bidding -- a process that would potentially reduce Halliburton's take.

Bunting has been working in procurement for almost 20 years, though this was his first job in a war zone. Experts say that while some of Halliburton's actions may in fact be ripe for investigation, others may be defensible -- or at least understandable -- considering the conditions in which it operates. "In a perfect world contractors pay attention to cost control," said Steven Schooner, an expert in procurement law and professor at George Washington University Law School. "Everybody would be happier if Halliburton were more careful about cost control. But one of the reasons they're not being that careful is because the government has given them broad contracts and has not devoted sufficient resources to keeping track of this. So there is a chaotic, Wild West aspect to it. Could another contractor have done it better? Maybe -- but it's unlikely."

But others aren't so blasé about Halliburton's alleged actions. "What is most disturbing is the regular and routine nature of the overcharging," wrote Reps. Henry Waxman and John Dingell, two Democrats who've been vocal critics of Halliburton, in a recent letter to the Defense Department. The company "paid inflated prices for goods and services on a daily basis and then passed these overcharges on to the U.S. taxpayer. An approach of 'don't worry ... it's cost-plus' may be lucrative for Halliburton, but it should be of great concern to the government and the taxpayer."

Bunting arrived at KBR's Kuwait office in early May, and he stayed on for about 15 weeks. He left, he says, because he was "completely worn out" from working long hours in an environment that he says was less than ideal. He was not fired, he stresses. But he says that he and his supervisors did clash often, mostly over whether or not it was worth taking the time to do his job the right way. When he got back from Kuwait, Bunting contacted Waxman with his story. On Feb. 13, Bunting testified before a panel of Senate Democrats.

Halliburton rejects Bunting's allegations. In a statement she sent by e-mail, Wendy Hall, a company spokeswoman, said, "Halliburton takes any charges of improper conduct seriously. That is the reason why we have such an aggressive internal audit team that performs forensic-like audits of our contracts." She noted that the company runs an internal hotline through which people can report their concerns. "This information is made available to every employee, including Mr. Bunting. We have no record of any calls from Mr. Bunting, or even any anonymous complaints that match up with this set of facts. If he was so concerned about this information, we question why he did not raise the issue by means made available to him in the Code of Business Conduct information that he acknowledged receiving."

Bunting says he didn't call the hotline because he knew retaliation would be swift. The atmosphere in the office, he said, "wasn't conducive to open communication."

Bunting is not the only one who has questioned Halliburton's commitment to saving the government money. On Monday, the Pentagon disclosed that it has opened a criminal investigation of the company stemming from a discovery that the firm might have overcharged the government by $61 million for fuel it shipped from Kuwait into Iraq. Investigators are reportedly looking into the same question that Bunting raises -- did Halliburton do all it could have done to secure the lowest price for the government? Halliburton denies any wrongdoing in the case.

Bunting spoke to Salon from his home in Houston.

Tell me what troubled you about Halliburton.

Their business practices. Their business practices were pretty shoddy -- I wouldn't run a lawn service on some of their practices.

For example, we were instructed to keep all purchase orders under $2,500 so we wouldn't have to get two quotes. I went out and got two quotes on several of them, and my supervisor said, "We only need one quote." So I went back to my desk and deleted the high quote. I mean, I pulled it from the file and put it in the paper shredder.

When I was hired we were given a list of vendors. They said, "Use these vendors." This was identified as their preferred vendor list. We used vendors without regard to cost. It was very common, it was said many times by the supervisors that the contract is a cost-plus contract: "Halliburton's going to be reimbursed, don't worry about the price."

[In an e-mail, Hall wrote that "The company has no official, authorized preferred vendor list for government operations in Kuwait and Iraq. However, when dealing in mission-critical situations where failure and delays are not an option, it is logical that the company would select vendors who have a proven track record of on-time and on-specifications delivery." But Bunting disputed this characterization. He said the vendors were often "late in delivery or late in quoting -- there was nothing qualifying these vendors."]

I've heard it said that "Don't worry about the price" was in some ways the company motto?

Right, "Don't worry about the price." I did seek out low-cost vendors. For example, I sought to try to standardize the office desks and chairs we were getting. I located some vendors and sent them a quote to get an idea on pricing compared to the preferred vendors. The preferred vendor was $30 higher on the desks and $10 higher on the office chairs.

Why did Halliburton choose those vendors?

You'll have to ask them, I don't know. Obviously they hadn't gone out to seek vendors who were qualified; they made no effort to contain cost.

Any other examples of cost overruns?

Well, there was pressure to purchase exercise equipment from a vendor in Kuwait. And I refused to do that. I went out and had the stuff quoted. The manager responsible for the exercise facilities, he said "Geez, it's available here, just place it with them. It's a cost-plus contract." I went out and had it quoted, and they kept giving me a hard time to place the order. Eventually we placed the order in the U.S. -- the only order that I know of that was placed with a vendor in the U.S. from Kuwait. The end result was that by placing it with them there was a savings of over $60,000 in that equipment.

What other kinds of equipment did you purchase?

We purchased office equipment, plumbing supplies, medical supplies, you name it, it went from A to Z. They told me to get the reqs placed. "We're not looking for the best prices, we're just looking to fill the order."

So did your supervisors ever get upset because you were trying to do things the right way?

Yes, he got upset. He frowned on me getting two bids. It didn't take long to understand that if you wanted your order to go through you had to just get one quote.

Was that different from other procurement offices you've worked in?

That was foreign to any procurement function that I've ever worked in, absolutely against all procurement experience that I've ever had.

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