Setback for Halliburton: A Victory for Fair Contracting?

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July 13, 2006

The Washington Post reported yesterday that the army is ending its multibillion dollar contract with oil giant Halliburton, which has enjoyed the exclusive and lucrative privilege of providing logistical services to soldiers stationed around the world.   POGO and others have repeatedly spoken out against large bundled contracts like the one awarded to Halliburton, because bundling shrinks the field of potential competitors, leaving the government with fewer options and probably higher bids.   Nonetheless, KBR spokeswoman Melissa Norcross insists that her company�s achievements in Iraq and elsewhere in Middle East have been �nothing short of amazing.�  The Pentagon has publicly lauded the company too, despite numerous audits that have determined that the company and its subsidiary, Kellogg, Brown & Root, cannot account for more than a billion dollars in charges to the government. 

The news is certainly promising, but there is still cause for great concern.  The Post article mentions that �the Pentagon's new plan will split the work among three companies, to be chosen this fall, with a fourth firm hired to help monitor the performance of the other three.� (emphasis POGO�s)   

By contracting out the crucial job of contract oversight, instead of keeping what should be an inherently governmental function in-house, the Department of Defense is only asking for more trouble down the road.  By outsourcing oversight, there will be more instances of organizational conflict of interest, where one company can use its access as overseer to another competitor's proprietary information to get a leg up in a contract competition.

As the article notes, the open bidding will probably attract �high-profile suitors� like Lockheed Martin and Northrop Grumman�not exactly the poster children for fair and honest contracting work.

Lockheed and Northrop�s interest in logistics services illustrates yet another trend in government contracting, particularly in the Defense Department: the increasing percentage of Pentagon contracting for services, rather than goods.  According to the Center for Public Integrity:

The Pentagon's shopping list has undergone a gradual, and largely unnoticed, transformation in the past two decades. In 1984, almost two-thirds of its contracting budget went for products rather than services. By the early 1990s, the ratio between the two had evened out. By fiscal 2003, 56 percent of Defense Department contracts paid for services rather than goods.

...the Pentagon also contracts for services that are highly sophisticated, strategic in nature, and closely approaching core functions that for good reason the government used to do on its own. The Pentagon has even hired contractors to advise it on hiring contractors.

As the government continues to outsource its service and oversight functions to companies with dubious track records, the Halliburton news is only a small step in the right direction.

Authors: Michael Smallberg

Project On Government Oversight (POGO)

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