The Truth About Halliburton

--updated Jan 31, 2006

The basic hypothesis of many Anti-Bush and left-wing reports is that campaign contributions must have affected the allocation of reconstruction contracts in Iraq; Halliburton's and Bechtel's large reconstruction contracts and generous support of politicians hint at such a finding. However, a closer look at the guts of the CPI report (CPI is a nonprofit, supposed nonpartisan watchdog organization) -the list of contract winners and the list of campaign contributions-exposes the flimsiness of this charge.

Consider the top 10 U.S. contractors in Iraq and Afghanistan in terms of dollars. The Washington Post story on the CPI report suggests a sinister connection:

The winners of the top 10 contracts for work in Iraq and Afghanistan contributed about
$1 million a year to national political parties, candidates and political action committees
since 1990, according to the group, which studies the links between money and politics.


However, a glance at Table 1 shows that of the 10 largest contractors, only four firms made contributions greater than $250,000 over the entire 12-year span of the study. Another four firms among the top 10 averaged less than $1,000 per year in campaign contributions, a pittance by Beltway standards. The Post's statement is technically accurate but conceals the fact that over 85 percent of the total figure comes from only three firms.

 

Table 1: Top 10 U.S. Contractors in Iraq and Afghanistan

Company Size of reconstruction contracts (in dollars) Campaign contributions (in dollars)
Kellogg Brown & Root (Halliburton)
$2,329,040,891
$2,379,792
Bechtel Group Inc.
1,029,833,000
3,310,102
International American Products Inc.
526,805,651
2,500
Perini Corp.
525,000,000
119,000
Contrack International Inc.
500,000,000
2,000
Fluor Corp.
500,000,000
3,624,173
Washington Group International
500,000,000
1,185,232
Research Triangle Institute
466,070,508
1,950
Louis Berger Group
300,000,000
212,456
Creative Associates International Inc.
217,139,368
10,300

On the other hand, if you look at Table 2, top 10 campaign contributors, you find that only four of them received more than $100 million in contracts-and none of those top four donors are in the top 10 for contracts. General Electric, the biggest campaign contributor, has actually spent more in contributions than it has received in reconstruction contracts. Bechtel and Halliburton have given millions in political contributions, but the top 10 lists don't support the notion that those campaign contributions were responsible for their winning bids.

Table 2: Top 10 Campaign Contributors Among Contractors for Iraq and Afghanistan

Company Size of reconstruction contracts (in dollars) Campaign contributions (in dollars)
General Electric Co.
$5,927,870
$8,843,884
Vinnell Corp. (Northrop Grumman)
48,074,442
8,517,247
BearingPoint Inc.
143,683,885
4,949,139
Science Applications International Corp.
38,000,000
4,704,909
Fluor Corp.
500,000,000
3,624,173
Bechtel Group Inc.
1,029,833,000
3,310,102
Kellogg Brown & Root (Halliburton)
2,329,040,891
2,379,792
American President Lines Ltd.
5,000,000
2,185,303
Dell Marketing LP
513,678
1,774,971
Parsons Corp.
89,000,000
1,403,508

Read the rest of the article here. Taken from: "Fables of the Reconstruction" by Daniel Drezner Posted Monday, Nov. 3, 2003. http://slate.msn.com/id/2090636


Clinton Procurement Official Steven Kelman calls allegations that the government rewarded Halliburton "Somewhere between highly improbable and utterly absurd." "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. ... Many people are also under the impression that contractors take the government to the cleaners. In fact, government keeps a watchful eye on contractor profits - and government work has low profit margins compared with the commercial work the same companies perform. ... As for the much-maligned Halliburton, a few days ago the company disclosed, as part of its third-quarter earnings report, operating income from its Iraq contracts of $34 million on revenue of $900 million - a return on sales of 3.7 percent, hardly the stuff of plunder."
(Steven Kelman, "No 'Cronyism' In Iraq," The Washington Post,11/6/03)

Clinton's Undersecretary Of Commerce Says Halliburton Allegations Overblown. "William Reinsch, president of the National Foreign Trade Council in Washington, is a Democrat who served under Clinton as undersecretary of commerce. He said he disagrees with most of the Bush administration's policies, but thinks the Halliburton controversy is overblown. 'Halliburton has a distinguished track record,' he said. 'They do business in some 120 countries. This is a group of people who know what they're doing in a difficult business. It's a particularly difficult business when people are shooting at you. ... I don't think we went to war because we thought it would help selected American companies.'"
(James Rosen, "Is Iraq's Reconstruction Rigged?" The [Raleigh] News &
Observer, 10/5/03)

Army Corps Of Engineers: "No Reason To Think Halliburton Has The Inside Track." "Scott Saunders, a spokesman for the [U.S. Army] Corps [of Engineers], said there is no reason to think Halliburton has the inside track. 'We've never really done something like this before - gone in and tried to fix a country while it's still being terrorized,' he said. 'We wouldn't have competitively bid the contracts if we didn't think there was more than one firm in the world that could do the job.'"
(James Rosen, "Is Iraq's Reconstruction Rigged?" The [Raleigh] News & Observer, 10/5/03)

Then, in February 2003, the Corps of Engineers gave Halliburton a temporary no-bid contract to implement its classified oil-fire plan. The thinking was it would be absurd to undertake the drawn-out contracting process on the verge of war. If the administration had done that and there had been catastrophic fires, it would now be considered evidence of insufficient postwar planning. And Halliburton was an obvious choice, since it put out 350 oil-well fires in Kuwait after the first Gulf War.

The Clinton administration made the same calculation in its own dealings with Halliburton. The company had won the LOGCAP in 1992, then lost it in 1997. The Clinton administration nonetheless awarded a no-bid contract to Halliburton to continue its work in the Balkans supporting the US peacekeeping mission there because it made little sense to change midstream. According to Byron York, Al Gore's reinventing-government panel even singled out Halliburton for praise for its military logistics work.

So, did Clinton and Gore involve the United States in the Balkans to benefit Halliburton? That charge makes as much sense as the one that Democrats are hurling at Bush now. Would that they directed more of their outrage at the people in Iraq who want to sabotage the country's oil infrastructure, rather than at the US corporation charged with
helping repair it. (Rich Lowry National Review Editor Sept 22, 2003)

Under the Clinton administration, Halliburton received hundreds of millions of dollars worth of construction contracts for rebuilding efforts in Kosovo and Haiti.

In a deal cut in June 2000 under President Clinton, the New York Post reports that Halliburton won 11 Navy contracts worth $110 million to build jails at Guantanamo Bay, a base in Kuwait, a ferry terminal on Vieques, an air station in Spain, a breakwater in the Azores and facilities slammed by a typhoon in Guam.


From Balloon-Juice.com:

One other quick thing- I noticed a striking difference in the description of Halliburton and KB&R in these latest stories that clear them of any wrongdoing. Let's look at the current stories:

CNN Money-

Halliburton Co. has been cleared of any wrongdoing in a Kuwait fuel-delivery contract that Pentagon auditors allege overcharged the U.S. government by more than $100 million, according to a published report Tuesday.

Matt Kelley- AP-

The Army apparently has sided with Halliburton in a dispute over the company's charges for fuel delivered to Iraq.

Reuters-

The U.S. Army said on Tuesday it had granted Halliburton (HAL.N: Quote, Profile, Research) a special waiver to bring fuel into Iraq under a no-bid deal with a Kuwaiti supplier despite a draft Pentagon audit that found evidence of overcharging for fuel.

BBC-

A senior US army officer has cleared the American engineering company Halliburton of any wrongdoing in relation to a contract to deliver fuel from Kuwait to Iraq, according to a newspaper report.

----Very interesting- what seems to be missing? Let's look at the accusations as they were being leveled by these same news agencies. From a few weeks ago, when facts didn't matter:

CNN-

President Bush Friday said if any company involved in Iraqi reconstruction has overcharged the government, it will have to repay the extra funds. "If there's an overcharge, like we think there is, we expect that money to be repaid," the president said when asked by a reporter about a Pentagon audit that may have uncovered a potential overcharge by Halliburton, the oil services company once run by Vice President Dick Cheney.

AP - Matt Kelley-

A Pentagon audit has found Vice President Dick Cheney's former company may have overcharged the Army by $1.09 per gallon for nearly 57 million gallons of gasoline delivered to citizens in Iraq, senior defense officials say.

Reuters-

A Pentagon audit of Halliburton, the oil services firm once run by Vice President Dick Cheney, has found evidence the company may have overcharged for fuel it brought into Iraq from Kuwait, military sources said on Thursday.

BBC-

US President George W Bush says he expects an oil company once run by his vice-president to return money if it has overcharged for services in Iraq. Dick Cheney used to head Halliburton, which is under contract to deliver fuel to the US military in Iraq.

---Hey Mr. Alterman- THAT liberal media. When there is an unsubstantiated and ill-informed charge of wrongdoing, every lead sentence has Cheney mentioned. When Halliburton is cleared of wrongdoing, it magically becomes Halliburton, rather than 'the company once run by Vice President Dick Cheney.'

You don't even have to try hard to find this stuff.

CNN Money is changing their stories, causing my [Balloon-Juice's] left wing friends to call me a hack (incorrectly) in the comments section. No worries. I have a paratrooper on my side. Thanks, BlackFive.


New info from the book Disinformation: 22 Media Myths That Undermine the War on Terror by Richard Miniter. Link here.

“But no matter how well we position ourselves in the market, I am struck by the extent to which the success or failure of a project is as much of a political decision as it is an engineering decision. Many times the engineering and technical aspects of a project can be relatively easy, but the project may be thwarted by unresolved political issues.”—Vice President Dick Cheney, in The Legend OF Halliburton.

THANKS TO THE IRAQ WAR, military contractors are flying high. And, some, like Icarus, get burned.


Is Halliburton one of those? Some antiwar activists scoff even at the question. They have little doubt that Halliburton made massive profits on the Iraq War and that its former chief executive, Vice President Dick Cheney, greased the skids. This line of antiwar thought is not new. In the 1960s, critics of the Vietnam War alleged that the military-industrial complex made millions from the war and that President Lyndon Johnson was rewarded when fighter jets were built in his home state of Texas. So is Halliburton a war profiteer?

At first glance, it would seem that a firm cannot be a war profiteer if it had next to no profits. Halliburton earned $85 million from $3.6 billion in Iraqi contracts, a profit margin of roughly 2.4 percent, in 2003. In the second quarter of 2004, Halliburton reported that it earned 1.4 percent profits on $1.7 billion worth of work in Iraq. These are pitifully small rates of return. Would you stick with a mutual fund that invested for less than a 2 percent return? Neither would Halliburton.
As a result of poor performance, Halliburton wants to sell the division that runs Iraqi operations, Kellogg, Brown & Root (KBR). It “has become an albatross for them,” according to Jason E. Putnam of Victory Capital Management, which owns some two million shares of Halliburton.

Could Halliburton be burying its Iraq profits elsewhere in its vast conglomerate? Not likely. The parent company itself is not very profitable: Mergent (formerly Moody’s) reports that the company lost $979 million on total world-wide sales of $20.4 billion in 2004.

Consider Halliburton’s stock price. When current CEO David J. Lesar took over from Dick Cheney in August 2000, the company’s shares were trading at $54. They sank to a record low of $8.70 in 2001. As of August 9, 2005, they trade at $58. If Halliburton had been raking in record profits in the war years (from 2003 to the present), its stock price would have climbed, not flatlined. But these small, essential facts have not stopped critics from fulminating about secret deals, no-bid contracts, and yes, fat profits extracted from taxpayers.

Of course, corporate income statements are always a minefield of footnotes, lawyerly evasions, and results from myriad unrelated divisions. In this case, it appears that Halliburton was brought low by trial lawyers, not by Iraqi terrorists. In 1998, while Dick Cheney was Halliburton’s CEO, Halliburton acquired Dresser Industries, its former rival in the oil-services business. A Dresser subsidiary, Harbison-Walker Refractories (which Dresser had sold in 1992), had made insulating bricks and coatings with asbestos decades before asbestos was banned. But the courts found Halliburton liable anyway. Halliburton finally settled its asbestos cases in December 2004, at a cost of $5.1 billion. The bottom line? Because of that payout, Halliburton has earned virtually no net profits for the last five years.

Is it possible that the Iraq operations made mountains of money, but simply not enough to compensate for the Everest of litigation costs? Independent journalists who have extensively investigated Halliburton’s operations reluctantly conclude that Iraq has not been a geyser of money for the troubled industrial giant.

“The truth is that the conspiracy theories about the vice president’s involvement in Halliburton’s Iraq contracts are either unproven or flatout wrong,” writes Fortune’s Peter Elkind. “And while the company’s Middle East operation is the subject of scathing audits and investigations, it’s hardly raking in scandalous profits. Indeed, Kellogg, Brown & Root, the part of Halliburton’s business that America seemed to hate because it was raking in far too much, is the part of the business Wall Street hates because it is making far too little.”

In early 2001, before September 11, Halliburton won the Defense Department’s “super contract,” which covers food, maintenance, construction, and other services worldwide. In hopes of getting more government business, Halliburton “bid a price that was shockingly low. In addition to being reimbursed for what it spent, Halliburton would get a base fee of 1 percent and a maximum performance award of just 2 percent,” noted Elkind. After September 11, that already awarded “super contract” meant that Halliburton received an avalanche of unexpected business—at very low profit margins. Elkind found one anonymous source on the contract who said, “LOGCAP [the ‘super contract’] could be the first cost-plus contract in history that’s lost money.”

How is this possible? “Cost plus” does not cover every cost. Certain unforeseen costs (such as additional security) are not covered. When those unreimbursable costs exceed 3 percent—the maximum profit plus bonuses Halliburton can legally extract—the cost-plus contract becomes a money loser. And in Iraq, there are loads of unforeseen, unreimbursable expenses. Convoys are attacked, supplies are destroyed in mortar strikes, insurance rates surge, local contractors demand higher than anticipated “hazardous duty” wages, and so on. Halliburton gets about two-thirds of its business in Iraq (which is about $12 billion) from LOGCAP and the remaining one-third from a contract called Restoring Iraqi Oil (RIO). The RIO contract was controversial because it was a sole-source contract awarded secretly before the war’s onset. Whistleblowers, particularly Corps of Engineers auditor Bunnatine Greenhouse, have come forward to accuse KBR of all sorts of abuses. So far, the company has not been successfully prosecuted for these alleged abuses.

Why the secret no-bid contract? Because, as Halliburton CEO David Lesar pointed out, Halliburton was the only contractor the Defense Department “had determined was in a position to provide the services within the required time frame given classified prewar planning requirements.” This was confirmed by Congress’s General Accounting Office. In other words, no one else could do the job, so competitive bidding would not have accomplished much and prewar planning had to be kept secret in order to maintain the tactical advantage of surprise. And, yes, foreign governments read Federal News and other specialty publications to keep up to date on military contracts and to predict what the U.S. military is planning.

Wasn’t Halliburton punished for bad service? While there was a blizzard of articles reporting that Halliburton was threatened with financial penalties, there is precious little evidence that those threats ever materialized. As far as I can tell, the only punishment imposed by the Pentagon on Halliburton was by the U.S. Army, which withheld $55.1 million in a food service billing dispute in April 2005—and then one month later awarded Halliburton $72 million in bonuses.

The confusion of threatened penalties and actual ones corrupted the analysis in a MoveOn.org ad, which claimed that “the Pentagon caught Halliburton overcharging $61 million for gasoline.” In fact, the Defense Contract Audit Agency found “potential overcharges of up to $61 million for gasoline.” So $61 million was the upper limit on the estimated overbilling. And it was Halliburton’s own auditors who caught the two Middle Eastern subcontractors overcharging for gasoline and turned them in. Halliburton offered to return $6.3 million to the Pentagon.

Dan Briody is the author of The Halliburton Agenda: The Politics of Oil and Money, the ur-text of the anti-Halliburton crowd. But Briody, an award-winning business journalist whose articles have graced Forbes, Wired, and the Industry Standard, presents a more careful indictment than many of his more partisan summarizers. He dismisses the “Cheney helped Halliburton win untold riches at taxpayer expense in Iraq” meme, writing, “Whether Dick Cheney had a hand in doling out contracts to his former company is unimportant, not to mention unprovable. Everyone in the industry and the military, with few exceptions, agrees that Halliburton was the right company for the job in Iraq because of its experience and the speed with which it was able to operate.”

Briody continues: “There was no question they were doing a quality job. Every military officer, past or present, I spoke with was more than satisfied with [Halliburton subsidiary] Kellogg, Brown & Root’s performance. They made life better at the camps, and that made the troops happier. And as many commanding officers told me, a happy army is a motivated army.” Briody, however, rightly criticizes Halliburton for something else. To understand Briody’s criticism of Halliburton, one has to go back to 1992, when the Pentagon decided to expand the Logistics Civil Augmentation Program—LOGCAP. What the U.S. Army decided to do (conspiracy theorists take note!) while Dick Cheney was Secretary of Defense was consider combining all of its overseas contracts into one “super contract.” This way, the Pentagon would only have “one necktie to pull” if they needed results rapidly. The Defense Department put out a request for proposals to research this concept. By all accounts, it was a competitive, lawful bid process.

The research contract was won by Kellogg, Brown & Root, which had been a Halliburton subsidiary since 1962. KBR recommended that the “super contract” be designed as a cost-plus arrangement, or what the Pentagon calls a “cost-reimbursement, indefinite-delivery/indefinitequantity contract.” Implicit in this scheme is what economists cheerfully call a “moral hazard.” Briody points out: “The structure of the contract encourages the contractor to spend excessive amounts of money. When your profit is a percentage of the cost, the more you spend, the more you make.”

Actually, the truth is more complicated. As Stan Crock of Business Week Online points out:

"If the alternative is fixed-price contracts, under which the contractor has to eat cost overruns or squeeze profits by keeping expenses down, that won’t work. . . . That’s not what Iraq is like. Contractors would have to build in profit margins of 200 percent or even more because of the uncertainty over whether convoys would be blown up or facilities bombed—and the same products would have to be shipped or the same work done time and again. Imagine the howls in the halls of Congress when such practices come to light. The best solution probably is cost-plus contracts, with a heavy dose of oversight by the folks with green eyeshades at the Pentagon, by the denizens of Capitol Hill, and by the media—exactly what’s happening now."


What happens next is where Briody calls foul.
In 1992, the Army tendered its LOGCAP contract, and Halliburton won it. “And the lucky recipient of the first five-year LOGCAP contract was the very same company hired to draw up the plan in the first place: Kellogg, Brown & Root.” While this kind of cozy arrangement is typical in government contracting, it doesn’t make it right or legal.
Briody interviewed a law professor who specializes in government contracts, who confirmed, “The idea behind the conflict of interest rules, as stated by the Code of Federal Regulations, is to prevent the existence of conflicting roles that might bias a contractor’s judgment and prevent unfair competitive advantage.” Yet that is apparently what happened. The contract came up for renewal in 1997, and Halliburton lost to DynCorp. In 2001, Halliburton’s KBR division won it back. Unlike previous ontracts, this one ran for ten years. Then came the September 11 attacks.

Briody, one of Halliburton’s most persistent critics, sees little wrong in this arrangement: “LOGCAP became part of the popular vocabulary after Halliburton was awarded several contracts in Iraq, which some lawmakers saw as blatant favoritism to the company once headed by Cheney, who was CEO from 1995 to 2000. Many of these arguments were undercut by the fact that the task orders awarded to Halliburton, with the exception of Operation Restore Iraqi Oil, in Iraq fell under the existing LOGCAP contract, competitively bid back in 2001. This was, of course, true.”

Briody’s main claim against Halliburton is that it won a defense contract in 1992 that it should not have. This is a long way from war profiteering and, anyway, the crime, if that is what it was, occurred in 1992—eleven years before the Iraq War. It might be government graft, but it is not war profiteering. Halliburton has been a bad bet for investors—and for conspiracy theorists. Its Iraq operations have been barely profitable and the company has performed poorly. There is no evidence that Vice President Cheney had a hand in awarding the Iraq contracts, and they were awarded in 2001, long before the Iraq War in 2003 (except for the RIO contract, which was secretly but legitimately let in the months before the war). Even Halliburton’s most devoted critic concedes as much. As they say in Texas, that dog won’t hunt.