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Project on Government Oversight

POGO Requests End of KBR's Monopolistic LOGCAP III Contract

The Honorable John McHugh
Secretary of the Army
1400 Defense Pentagon
Washington DC 20301-1400

Dear Mr. Secretary:

The Project On Government Oversight (POGO) was recently informed that the Army is considering awarding KBR, Inc., additional work in Iraq under the Logistics Civil Augmentation Program (LOGCAP) III contract. That action continues KBR's monopoly on LOGCAP work in Iraq rather than using the competitive procurement procedures created under LOGCAP IV. To better evaluate goods and services, and to get the best value for taxpayers, the government must encourage genuine competition. In the context of the Commission on Wartime Contracting (CWC) hearing today, this issue is on the table via a business case analysis for the Army as it considers not transitioning from the noncompetitive LOGCAP III to the competitive LOGCAP IV contract for base life support services in Iraq. We have grave concerns about the awarding of several billion dollars to KBR for the LOGCAP program absent competition. 

POGO echoes the concerns expressed by House Committee on Oversight and Government Reform Chairman Edolphus Towns in his March 3, 2010, letter to the Secretary of Defense about awarding a contract in Iraq to KBR in light of its poor past performance (Attachment 1). As stated by Chairman Towns, reports raise serious questions regarding KBR's past performance such as "[f]aulty electrical systems maintained by KBR have caused serious injuries in Iraq…." In addition to the electrocution issues, the Defense Contract Audit Agency (DCAA) reported numerous issues regarding KBR, including significant overpayments and fraud referrals, at a CWC hearing in May 2009. [1]
 
In light of KBR's serious performance issues, we are concerned that the Army is considering what amounts to a sole-source award to the company rather than using the competitive LOGCAP IV contract. The Army has stated that competition for in-theater procurements will solve many of the management problems on the LOGCAP program. In a press release on April 17, 2008, Acting Undersecretary of the Army Nelson M. Ford stated, "LOGCAP IV uses competition to deliver the best quality at the right price for our men and women around the world. This approach provides our soldiers the quality and value that the American public expects for their tax dollars." [2]
 
At a CWC hearing in May 2009, Mr. Jeffrey P. Parsons, Executive Director, U.S. Army Contracting Command, reiterated the positive benefits of competition when transitioning from LOGCAP III to IV: "Eliminating a single point of failure by awarding three contracts was just one of many of the improvements we made in LOGCAP IV. We realized early on that a number of problems we experienced in LOGCAP III were directly related to the overtaxed business systems and how the prime contractor [KBR] managed its subcontracts." [3]
 
Not only is a sole-source award to KBR inconsistent with the Army's plan for improved management of the LOGCAP IV contract, but it is also contrary to the requirements of Public Law 110-181, the National Defense Authorization Act for Fiscal Year 2008. Section 843 ("Enhanced Competition for Task Order and Delivery Order Contracts") [4] requires the use of competition when awarding task order or delivery order contracts in excess of $100 million unless certain conditions are met. Moreover, awarding a sole-source contract directly violates White House instructions to reduce "the use of high risk contracting authorities," including noncompetitive contracts. [5] In light of KBR's significant shortcomings in performance, including faulty electrical work that risked the lives of U.S. soldiers, and its unwillingness to correct deficiencies in its business systems in a timely manner, POGO hardly believes it is in the best interest of the public to award additional work to KBR under LOGCAP III.

Finally, we recognize that the drawdown of troops in Iraq presents management challenges to the Army. However, it appears that the Army's delay in transitioning from LOGCAP III to IV in Iraq only exacerbates this situation and continues to benefit KBR rather than the government and taxpayers. Senators Claire McCaskill and Susan Collins expressed concerns with the Army's delay in transitioning to LOGCAP IV in a May 1, 2009, letter to Secretary Gates (Attachment 2). POGO shares those concerns. Delays in transitioning LOGCAP III to IV in Iraq and the proposed use of a sole-source procurement to KBR represents an unacceptable risk to the taxpayer. We urge the Army to reconsider the continued use of the LOGCAP III program and end KBR's monopoly in Iraq.

POGO has a keen interest in government contracting matters, especially matters related to competition in federal contracting. Thank you for your time and consideration. If you have any questions or would like to discuss this issue in more detail, please contact me or POGO's General Counsel Scott Amey at (202) 347-1122.

Sincerely, 

Danielle Brian
Executive Director

Attachments:
 
1.      Letter from Chairman Edolphus Towns, House Committee on Oversight and Government Reform, to Robert M. Gates, Secretary of Defense, March 3, 2010.

2.      Letter from Chairman Claire McCaskill and Ranking Member Susan Collins, Senate Subcommittee on Contracting Oversight, to Robert M. Gates, Secretary of Defense, May 1, 2009.

Endnotes

Testimony of April G. Stephenson, Director, Defense Contract Audit Agency, before the Commission on Wartime Contracting, May 4, 2009. (Downloaded March 27, 2010)

2 U.S. Army News Release, LOGCAP IV logistics contract awarded through full and open competition, April 17, 2008. (Downloaded March 25, 2010)

3 Hearing of the Commission on Wartime Contracting, LOGCAP: Support-Contracting Challenges in Iraq and Afghanistan, May 4, 2009. 

4 Public Law 110–181, Sec. 843, "Enhanced competition requirements for task and delivery order contracts," January 28, 2008.

5 Executive Office of the President, Office of Management and Budget, Peter R. Orszag, Memorandum for the Heads of Departments and Agencies: Improving Government Acquisition, M-09-25, July 29, 2009.  (Downloaded on March 25, 2010) 

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