Waxman opens fire on Blackwater …

Posted by Joshua Holland at 8:06 AM on December 12, 2006.

A few months ago I wrote:

If you were to gather together the finest, most creative minds and ask them to come up with a plan to outsource the reconstruction of Iraq that would guarantee shoddy work, overcharges, unfinished projects and overt graft, they would probably devise a system very similar to what U.S. taxpayers have enjoyed -- to the tune of about $30 billion -- for the past three years.

Enter Henry Waxman, incoming chair of the House Government Reform Committee, with a perfect example. He wants to know "why Blackwater USA" -- a premier modern mercenary firm -- "was paid so much for security work in Iraq -- and why, in fact, the North Carolina company was paid at all."

Taxpayers paid exorbitant prices for Blackwater's services, U.S. Rep. Henry Waxman wrote in a letter to outgoing Defense Secretary Donald Rumsfeld…

The California congressman said that Blackwater's services were not just pricey, but prohibited, because the Army never authorized Blackwater or any other Halliburton subcontractors to guard convoys or carry weapons. Houston-based Halliburton has been paid at least $16 billion to provide food, lodging and other support for troops in Iraq, and $2.4 billion to work on Iraqi oil infrastructure.

Waxman demanded "whether and how the Army intends to recover taxpayer funds paid to Halliburton and Blackwater for services prohibited under [Halliburton's] contract." [ht: FireDogLake]

In this instance, Blackwater was a sub-sub-contractor for Halliburton. The way many of these reconstruction deals are structured -- as massive, "bundled," cost-plus contracts -- no firm on the planet has the staff and resources to do the job itself. So instead of awarding dozens of contracts on a competitive basis to firms that specialize in, say, road construction or building sewage treatment plants or convoy security -- an approach that would give smaller, hungrier companies a shot at some of the action -- you take dozens of different jobs and lump them all together in one megaproject.

Then the prime contractor effectively takes over the government's oversight role. And while anti-government types claim that they have a profit motive to ensure efficient service from their sub-contractors, the opposite is true: cost-plus contracts -- contracts that deliver a specified profit margin on top of what the firms pay out to whoever does the actual work -- give the prime contractor a motive to ignore waste and fraud. Consider the case at hand:

At the lowest level, Blackwater security guards were paid $600 a day. Blackwater added a 36 percent markup, plus overhead costs, and sent the bill to a Kuwaiti company that ordinarily runs hotels, according to the contract.

That company, Regency Hotel, tacked on costs and profit and sent an invoice to ESS. The food company added its costs and profit and sent its bill to Kellogg Brown & Root, a division of Halliburton, which added overhead and profit and presented the final bill to the Pentagon.

Got that? The taxpayers shell out hundreds of thousands of dollars to train a soldier. That soldier goes to Blackwater to earn $600 a day working beside (unhappy) grunts making $50. Blackwater adds a chunk and bills a hotel in Kuwait, which adds a chunk and bills a food services company, which in turn adds a chunk and bills Halliburton subsidiary KBR. The taxpayers' have been had coming and going.

And it gets worse…

Tina Ballard, an undersecretary of the Army, testified in September that the Army had never authorized Halliburton or its subcontractors to carry weapons or guard convoys. Ballard testified that Blackwater provided no services for Halliburton or its subcontractors.

Waxman said ESS had sent him a memo saying the food company had hired Blackwater to provide security services under the Halliburton contract.

"If the ESS memo is accurate, it appears that Halliburton entered into a subcontracting arrangement that is expressly prohibited by the contract itself," Waxman wrote. "After more than two years, we still do not know how much ESS and Halliburton charged for these security services."

At a hearing in June, Blackwater vice president Chris Taylor testified that Blackwater's 36 percent markup included all the company's costs. Rep. Christopher Shays, a Connecticut Republican, interrupted, reminded Taylor he was under oath and ordered Blackwater to provide the documents to back up his testimony. Blackwater has not provided any of the contracts and other documents requested by the committee.

In Thursday's letter, Waxman said Taylor's testimony was wrong: Blackwater's contracts posted on The [News and Observer's] Web site showed that Blackwater billed separately for insurance, room and board, travel, weapons, ammunition, vehicles and office space, as The N&O article reported.

But, hey, I hear they've painted some schools.

Tagged as: iraq, profiteering, blackwater, mercenaries, waxman

Joshua Holland is a staff writer at Alternet and a regular contributor to The Gadflyer.