What would the U.S. military do without KBR, its largest logistical contractor?
That's not something the military ever wants to find out. The U.S. occupation of Iraq would collapse within days without KBR, which provides food, fuel, and potable water along with critical services ranging from complex engineering to cleaning out the port-o-potties.
And KBR knows it. A story on the front page of today's New York Times lays bare the leverage that KBR holds over the U.S. military.
In short, KBR can charge the U.S. government anything it wants under the implicit threat that the firm will halt logistical services to troops in Iraq. If the military doesn't pay up in full, KBR has warned, "it would reduce payments to subcontractors, which in turn would cut back on services."
That's according to Charles M. Smith, the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the Iraq war. Smith, speaking out for the first time, said he was ousted from his job after he tried to question KBR's massive billing.
The Army itself admits to the Times that it really had no choice but to pay KBR.
"You have to understand the circumstances at the time," said Jeffrey P. Parsons, executive director of the Army Contracting Command. "We could not let operational support suffer because of some other things."
Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.
As chief of the Field Support Contracting Division of the Army Field Support Command, he was in charge of the KBR contract from the start. Mr. Smith soon came to believe that KBR's business operations in Iraq were a mess. By the end of 2003, the Defense Contract Audit Agency told him that about $1 billion in cost estimates were not credible and should not be used as the basis for Army payments to the contractor.
"KBR didn't move proper business systems into Iraq," Mr. Smith said.
Along with the auditors, he said, he pushed for months to get KBR to provide data to justify the spending, including approximately $200 million for food services. Mr. Smith soon felt under pressure to ease up on KBR, he said. He and his boss, Maj. Gen. Wade H. McManus Jr., then the commander of the Army Field Support Command, were called to Pentagon meetings with Tina Ballard, then the deputy assistant secretary of the Army for policy and procurement.
After Smith was pushed out, the Defense Department hired a contractor to approve KBR's billing. (The department's own auditors had agreed with Smith that KBR was not properly documenting its billing.)
U.S.-paid contractors now outnumber U.S. troops in Iraq. Many contractors are recruited from poor Asian countries and paid far less than Americans would demand.
We've heard before about the "profound systemic problems" with KBR's billing. But Smith's account is the first time we've heard about an implicit threat to cut off services to troops.
KBR doesn't have the best record of providing troops' services. The company was criticized in March for making troops sick by failing to provide clean water. And top military officials have given false statements to Congress to quell controversy over the company.
But there's not much the military can do about it. Installing another company with the infrastructure inside Iraq needed to provide the same services would be an all-but insurmountable undertaking. So Smith's account should really come as no surprise.
"In the end," Mr. Smith said, "KBR got what it wanted."