Panel Finds Widespread Waste In Wartime Contracts

August 31, 2011

Scott Neuman

Waste and fraud in Iraq and Afghanistan has cost U.S. taxpayers as much as $60 billion and the tally could grow, according to a government study released Wednesday.

In its final report to Congress, the nonpartisan Commission on Wartime Contracting said lax oversight of contractors, poor planning and corruption resulted in losses of "at least $31 billion, and possibly as much as $60 billion" out of some $206 billion in total payments to contractors by the end of the current fiscal year.

"Much of the waste, fraud, and abuse revealed in Iraq and Afghanistan stems from trying to do too much, treating contractors as a free resource, and failing to adapt U.S. plans and U.S. agencies' responsibilities to host-nation cultural, political, and economic settings," the 240-page report read.

The head of the commission, Robert Henke, said Congress asked the panel to answer two questions: How much does the government rely on contractors in Iraq and Afghanistan, and how much money has been wasted?

"Our conclusion is that there is tremendous over-reliance" on contractors, Henke said.

Another panel member, former Pentagon Comptroller Dov Zakheim, said the amount of abuse was sizable: "$206 billion is a lot of money on contracting, but so is $60 billion in waste, of which a considerable amount — maybe as much as $18 billion — is pure fraud."

The commission warned that the waste could grow as U.S. support for reconstruction projects and programs wanes, leaving Iraq and Afghanistan to bear the long-term costs of sustaining the schools, medical clinics, barracks, roads and power plants already built with American money.

While previous reports from the commission have cited evidence of contracting waste and fraud, the latest analysis is the most comprehensive cataloging of alleged abuses to date in Iraq and Afghanistan.

Contractors Under Scrutiny

The commission cited numerous examples of waste, including a $360 million U.S.-financed agricultural development program in Afghanistan. The effort began as a $60 million project in 2009 to distribute vouchers for wheat seed and fertilizer in drought-stricken areas of northern Afghanistan. The program expanded into the south and east. Soon the U.S. was spending a $1 million a day on the program, creating an environment ripe for waste and abuse, the commission said.

"Paying villagers for what they used to do voluntarily destroyed local initiatives and diverted project goods into Pakistan for resale," the commission said.

Kellogg Brown & Root, the No. 1 supplier of contract services for U.S. forces in Iraq and Afghanistan, was much scrutinized in the report. The commission highlighted what it said was hundreds of millions of dollars in questionable payments to the Houston-based company, including $221 million in excess fuel charges.

KBR, which had been a subsidiary of Halliburton until 2007, also was unable to account for about 3 percent of its government-furnished property, which was worth as much as $100 million, the report said, citing the Defense Department's inspector general.

It also noted alleged kickbacks paid by a Kuwaiti company, Tamimi, to KBR managers. Tamimi subsequently won more than $700 million in contracts from KBR for dinging facility services, the report said.

In a statement emailed to NPR, Kellogg Brown & Root said it disagreed with some of the findings in the report.

"When we have identified potential issues, we have reported them to our clients and the appropriate agencies as required, and have fully cooperated with those agencies to investigate and address each issue," the statement read. "While we do not agree with some allegations raised by the Government or the Commission on Wartime Contracting, we have initiated efforts to resolve these issues."

Another contractor, DynCorp, also came in for criticism in the report. It said the company didn't have enough staff to do its job, which was to make electrical repairs to damaged buildings in Afghanistan.

"DynCorp categorized repairs as 'complete' when the parts were on order but the repairs had not been made," the report read.

DynCorp, based in Falls Church, Va., told NPR that it had "hired more than 200 additional employee and subcontract electricians and support personnel" since the concerns were raised, and that it had subsequently made changes to eliminate confusion as to whether work had been completed.

First Kuwaiti General Trading and Contracting Company, awarded a contract to build a new U.S. embassy compound in Baghdad, racked up more than $43 million worth of construction deficiencies due to failure to comply with specifications, improper construction and installation, and use of sub-standard materials and equipment, it said.

15 Recommendations

The commission said government agencies should overhaul the way they award and manage contracts in war zones so they don't repeat the mistakes made in Iraq and Afghanistan. Among the report's 15 recommendations were the creation of an inspector general to monitor contracting and the appointment of a senior government official to improve planning and coordination.

"The problem is that military doesn't consider services contracting as a core function," Grant S. Green, a commission member and former undersecretary of state, told NPR. There are mechanisms in place when it comes to procuring hardware, he said, but "we don't have the same systems in place when it comes to procuring services."

Michael O'Hanlon, a senior fellow at the Brookings Institution, said it's important to remember that given the way the military was structured at the start of the war in Afghanistan, "it would have been impossible to fight it without these contractors" because the military lacked the necessary personnel.

O'Hanlon praised commission's work but said he thought "most of the contractors in theater do a good job."

Styled after the Truman Committee, which examined World War II spending six decades ago, the panel was created by Congress in 2008 and vested with broad authority to examine military support contracts, reconstruction projects and private security companies. But the law creating the commission also dictated that it would cease operating at the end of September 2011, even as the U.S. operations in Iraq and Afghanistan continue to be heavily supported by contractors.

The Afghan insurgency's second largest funding source after the illegal drug trade is the diversion of money from U.S.-backed construction projects and transportation contracts, according to the commission. But the report does not say how much money has been funneled to the insurgency. The money typically is lost when insurgents and warlords threaten Afghan subcontractors with violence unless they pay for protection, according to the report.

The Associated Press reported earlier this month that U.S. military authorities in Kabul believe $360 million in American tax dollars has ended up in the hands of people the U.S.-led coalition has spent nearly a decade battling: the Taliban, criminals and power brokers with ties to both. The military said only a small percentage of the $360 million has been garnered by the Taliban and insurgent groups. Most of the money was lost to profiteering, bribery and extortion by criminals and power brokers.

"A lot of this money in Afghanistan did actually get to the Taliban," O'Hanlon said. "That hurt us in terms of strengthening the enemy."

NPR's Tamara Keith reported from Washington, D.C., for this story, which contains material from The Associated Press.

Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.

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