Daniel W. Drezner
Is Al Gore responsible for Halliburton?
I’ve received a lot of e-mail traffic from the Slate piece on whether there was systemic corruption in the awarding of official reconstruction contracts in Afghanistan and Iraq. Half of them raise the following point:* even if there’s no systemic pattern of corruption, it is true that Halliburton and Bechtel received big, fat, cost-plus contracts ...
I’ve received a lot of e-mail traffic from the Slate piece on whether there was systemic corruption in the awarding of official reconstruction contracts in Afghanistan and Iraq. Half of them raise the following point:* even if there’s no systemic pattern of corruption, it is true that Halliburton and Bechtel received big, fat, cost-plus contracts of indefinite duration. Clearly, these firms are closely linked to this administration. Isn’t this a specific example of corruption? This is definitely a valid question. My answer here is a bit murkier, but I still say no. The best source on this beyond the CPI report is Dan Baum’s June 22nd story, “Nation Builders for Hire,” in the New York Times Magazine. If you read that article and the CPI report, you discover three things: 1) Kellogg, Brown & Root (KBR) got the current contracts because of path dependence. Because KBR got contracts in the past, it increased the likelihood of getting them now. Consider this paragraph from Baum’s story:
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. (emphasis added)
2) The people who work at Kellogg, Brown & Root are pretty good at their job. One example from Baum:
Proponents of contracting make the point that as the the overall size of the military shrinks, the ”tooth” needs to increase relative to the ”tail,” or, as one analyst put it, ”You want the 82nd Airborne training to kill people and blow things up, not cleaning latrines or trimming hedges.” They also argue it’s cheaper to hire contractors to do short-term work rather than have the military maintain full-time capabilities it needs only briefly. A good example is Camp Arifjan, a U.S. Army base about 90 minutes southwest of Kuwait City. Six months ago, this was nothing but a small collection of buildings that was supposed to be a training base. On Oct. 11 — the day Congress gave President Bush authority to wage war on Iraq — someone in the Pentagon picked up a phone and told KBR it had nine weeks to turn Arifjan into a full-blown Army base for 7,000 people. The job went to Robert (Butch) Gatlin, a wizened 59-year-old Tennessean who served 32 years in the Army Corps of Engineers before coming to perform the same work, at much greater pay, for KBR. ”When we got here, there was no power or water,” Gatlin said as we stepped from the air-conditioned trailer that is KBR’s Arifjan headquarters into the blinding desert sun. Within about 72 hours of the Pentagon’s call, Gatlin had a handful of KBR specialists — electricians, carpenters, plumbers — on planes headed here. Most of the rest were hired locally. ”I had a thousand people working here in 24 hours,” he said. ”The Army can’t do that.”
If you read the article in it’s entirety, it’s clear that comparative advantage for KBR is not necessarily cost-efficiency but speed. Baum concludes, “There is no question that companies like KBR are up to the job.” 3) KBR’s ability to win contracts they get emerged prior to the Bush administration taking office. Again from Baum:
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.
So, the big jump in KBR’s contracts takes place under the Clinton administration. By Clinton’s second term, “one of every seven Pentagon dollars passed through KBR.” Why the dramatic increase under Clinton? Blame Al Gore. Well, not really, but sort of. According to this section of the CPI report:
At one time, federal agencies constructed buildings, built machines and cleaned offices themselves, or found another agency to do it. Today, the U.S. government spends some $200 billion a year buying everything from information technology services to pencils to advanced weapons systems from the private sector. The Defense Department alone accounts for 75 percent of that spending. Following a series of scandals in the 1980s, where the Pentagon was revealed to have paid outrageous sums for commercially available products, Congress decided to overhaul government procurement. The result was the Federal Acquisition Streamlining Act of 1994, which simplified the maze of procurement regulations to make it easier for federal agencies to buy products from the private sector. The new law dovetailed with former Vice President Al Gore’s “Reinventing Government” initiative, which aimed to trim the federal workforce, and matched the realities of the Pentagon’s shrinking budget. As a result, where the federal workforce has shrunk, the contractor workforce has grown.
Matthew Yglesias makes a similar point:
By and large, the Bush administration is following the law and using all the procedures the law lays out. The trouble is that the laws are bad. We’ve privatized significant portions of government operations in areas where there is no need for doing so. In principle, privatization might lead to competition and cost savings for the taxpayer. In practice, in many of these areas there is no competition — Halliburton and Bechtel are essentially monopoly suppliers in the fields where they’ve won contracts. When you outsource services to private monopolies, all you’re setting yourself up for is the busting of some public sector unions and some price-gouging at the hands of monopolist corporations. (emphasis added)
I agree completely with Yglesias that there should be a full debate about whether contracting has gone too far. I’d disagree with him, but it’s a perfectly proper topic for discussion. The corruption claim, however, is far weaker. UPDATE: For a good discussion of these issues, see this transcript from last night’s NewsHour. One point made by former Major General Patrick Kelly:
In the case of one of the companies that was cited by Mr. Lewis, which is Kellogg Brown and Root, they, they, the Army and the Corps of Engineers exercised an existing contract with the Army that I might point out was consummated during the Clinton administration. It was not consummated in this administration. And they took that existing contract and then they realized that Kellogg, Brown and Root had the necessary skills, they were in the MidEast, and they could immediately go into Iraq and help restore the oil service industry, which is why they were selected. But they were not given a special contract. They already had that contract.
ANOTHER UPDATE: Jon Henke at QandO takes a look at Halliburton’s 3rd quarter statement from this year, and notes the following sentence, “Total company revenue and operating income from Iraq-related work in the third quarter were $900 million and $34 million, respectively.” As Jon puts it:
Yep, a profit margin of less than 4%. Good times are here again. Look, I’ve no doubt that there is a degree of “politics” involved in the decision-making process. That’s true for every industry. I’ve also no doubt that there is a lot of waste. It is, after all, government. But the allegations that this is a “pay off” for friends and supporters is simply unsupported.
One would be hard-pressed to discover anyone with a working knowledge of how federal contracts are awarded — whether a career civil servant working on procurement or an independent academic expert — who doesn’t regard these allegations as being somewhere between highly improbable and utterly absurd. The premise of the accusations is completely contrary to the way government contracting works, both in theory and in practice. Most contract award decisions are made by career civil servants, with no involvement by political appointees or elected officials. In some agencies, the “source selection official” (final decision-maker) on large contracts may be a political appointee, but such decisions are preceded by such a torrent of evaluation and other backup material prepared by career civil servants that it would be difficult to change a decision from the one indicated by the career employees’ evaluation. Having served as a senior procurement policymaker in the Clinton administration, I found these charges (for which no direct evidence has been provided) implausible…. The whiff of scandal manufactured around contracting for Iraq obviously has been part of the political battle against the administration’s policies there (by the way, I count myself as rather unsympathetic to these policies). But this political campaign has created extensive collateral damage. It undermines public trust in public institutions, for reasons that have no basis in fact. It insults the career civil servants who run our procurement system. Perhaps most tragically, it could cause mismanagement of the procurement system. Over the past decade we have tried to make procurement more oriented toward delivering mission results for agencies and taxpayers, rather than focusing on compliance with detailed bureaucratic process requirements. The charges of Iraq cronyism encourage the system to revert to wasting time, energy and people on redundant, unnecessary rules to document the nonexistence of a nonproblem. If Iraqi contracting fails, it will be because of poorly structured contracts or lack of good contract management — not because of cronyism in the awarding process.
Yep. *So, what are the other half of the e-mails like?–ed. They’re mostly of the “you’re a partisan hack” variety, a fact that should amuse my regular group of cantankerous readers.