Halliburton's Iraq gravy train

A former procurement specialist for the giant, White House-connected company charges that it failed to seek out competitive bids -- enriching itself and costing taxpayers tens of millions of dollars extra.

Published February 27, 2004 8:30PM (EST)

Halliburton Corp.'s latest image-rehabilitating television commercial begins with a narrator wistfully declaring, "When I joined Halliburton, I knew I was going to work on some big things." At Halliburton, the narrator explains, people are constantly trying to improve the lives of others. They fight oil-well fires, they bring supplies to stranded troops. "We built bridges, schools, all over the world." And that's not even the best part. "The biggest thing?" the narrator asks as the screen flashes to a group of smiling Halliburton employees dishing up hot meals to American GIs. "Serving our troops good ol' American food, so they'd feel just a little closer to home. Yeah."

It's a nice image. But to Henry Bunting, a veteran procurement specialist who worked for Halliburton's subsidiary Kellogg Brown & Root in Kuwait last summer, this saccharine picture of Halliburton as a beneficent do-gooder doesn't ring true. According to Bunting, Halliburton's personnel in the Middle East weren't looking out for the government as much as they were looking out for the company. Bunting, who has recently been telling his story to congressional Democrats, says that Halliburton, which has been awarded billions of dollars of contracts for work in Iraq, routinely purchased the most expensive equipment and services on the government's tab. Bunting claims that Halliburton managers frowned on any attempts to save the military any money. They had no incentive to do so: taxpayers would pick up the cost. In fact, they had an incentive to bill high: the more they spent, the more money their company would make.

Bunting worked as a buyer for Halliburton's "Logcap" contract with the U.S. Army, a $3.7 billion deal under which Halliburton provides the military with logistics support -- it builds bases, runs mess halls, does the laundry, supplies water and performs dozens of other tasks necessary to keep the Army running. The contract is a "cost-plus" contract, meaning that the military reimburses Halliburton for all of its expenses, and then gives it an extra percentage as a profit. Experts have long criticized cost-plus contracts as being economically inefficient; companies that work under cost-plus deals have no reason to reduce their expenses, meaning that the government may end up paying more than it should for services.

To keep costs down, firms that have been awarded cost-plus contracts pledge to open their processes to competitive bidding, making sure that they're getting low prices on equipment they use. Halliburton says that it complies with all federal requirements regarding competitive bidding. But according to Bunting, this is where Halliburton fell short; it constantly failed to seek low prices in its operations, violating the spirit, if not the letter, of its contract with the government. Bunting says that even though his job was ostensibly to get the best deals on equipment for the Army -- everything from office chairs to medical supplies -- his managers often told him, "Don't worry about the price, it's cost-plus." Supervisors urged buyers like him to keep their orders under $2,500, Bunting says, because orders for more than that amount would need to be submitted to multiple vendors for competitive bidding -- a process that would potentially reduce Halliburton's take.

Bunting has been working in procurement for almost 20 years, though this was his first job in a war zone. Experts say that while some of Halliburton's actions may in fact be ripe for investigation, others may be defensible -- or at least understandable -- considering the conditions in which it operates. "In a perfect world contractors pay attention to cost control," said Steven Schooner, an expert in procurement law and professor at George Washington University Law School. "Everybody would be happier if Halliburton were more careful about cost control. But one of the reasons they're not being that careful is because the government has given them broad contracts and has not devoted sufficient resources to keeping track of this. So there is a chaotic, Wild West aspect to it. Could another contractor have done it better? Maybe -- but it's unlikely."

But others aren't so blasé about Halliburton's alleged actions. "What is most disturbing is the regular and routine nature of the overcharging," wrote Reps. Henry Waxman and John Dingell, two Democrats who've been vocal critics of Halliburton, in a recent letter to the Defense Department. The company "paid inflated prices for goods and services on a daily basis and then passed these overcharges on to the U.S. taxpayer. An approach of 'don't worry ... it's cost-plus' may be lucrative for Halliburton, but it should be of great concern to the government and the taxpayer."

Bunting arrived at KBR's Kuwait office in early May, and he stayed on for about 15 weeks. He left, he says, because he was "completely worn out" from working long hours in an environment that he says was less than ideal. He was not fired, he stresses. But he says that he and his supervisors did clash often, mostly over whether or not it was worth taking the time to do his job the right way. When he got back from Kuwait, Bunting contacted Waxman with his story. On Feb. 13, Bunting testified before a panel of Senate Democrats.

Halliburton rejects Bunting's allegations. In a statement she sent by e-mail, Wendy Hall, a company spokeswoman, said, "Halliburton takes any charges of improper conduct seriously. That is the reason why we have such an aggressive internal audit team that performs forensic-like audits of our contracts." She noted that the company runs an internal hotline through which people can report their concerns. "This information is made available to every employee, including Mr. Bunting. We have no record of any calls from Mr. Bunting, or even any anonymous complaints that match up with this set of facts. If he was so concerned about this information, we question why he did not raise the issue by means made available to him in the Code of Business Conduct information that he acknowledged receiving."

Bunting says he didn't call the hotline because he knew retaliation would be swift. The atmosphere in the office, he said, "wasn't conducive to open communication."

Bunting is not the only one who has questioned Halliburton's commitment to saving the government money. On Monday, the Pentagon disclosed that it has opened a criminal investigation of the company stemming from a discovery that the firm might have overcharged the government by $61 million for fuel it shipped from Kuwait into Iraq. Investigators are reportedly looking into the same question that Bunting raises -- did Halliburton do all it could have done to secure the lowest price for the government? Halliburton denies any wrongdoing in the case.

Bunting spoke to Salon from his home in Houston.

Tell me what troubled you about Halliburton.

Their business practices. Their business practices were pretty shoddy -- I wouldn't run a lawn service on some of their practices.

For example, we were instructed to keep all purchase orders under $2,500 so we wouldn't have to get two quotes. I went out and got two quotes on several of them, and my supervisor said, "We only need one quote." So I went back to my desk and deleted the high quote. I mean, I pulled it from the file and put it in the paper shredder.

When I was hired we were given a list of vendors. They said, "Use these vendors." This was identified as their preferred vendor list. We used vendors without regard to cost. It was very common, it was said many times by the supervisors that the contract is a cost-plus contract: "Halliburton's going to be reimbursed, don't worry about the price."

[In an e-mail, Hall wrote that "The company has no official, authorized preferred vendor list for government operations in Kuwait and Iraq. However, when dealing in mission-critical situations where failure and delays are not an option, it is logical that the company would select vendors who have a proven track record of on-time and on-specifications delivery." But Bunting disputed this characterization. He said the vendors were often "late in delivery or late in quoting -- there was nothing qualifying these vendors."]

I've heard it said that "Don't worry about the price" was in some ways the company motto?

Right, "Don't worry about the price." I did seek out low-cost vendors. For example, I sought to try to standardize the office desks and chairs we were getting. I located some vendors and sent them a quote to get an idea on pricing compared to the preferred vendors. The preferred vendor was $30 higher on the desks and $10 higher on the office chairs.

Why did Halliburton choose those vendors?

You'll have to ask them, I don't know. Obviously they hadn't gone out to seek vendors who were qualified; they made no effort to contain cost.

Any other examples of cost overruns?

Well, there was pressure to purchase exercise equipment from a vendor in Kuwait. And I refused to do that. I went out and had the stuff quoted. The manager responsible for the exercise facilities, he said "Geez, it's available here, just place it with them. It's a cost-plus contract." I went out and had it quoted, and they kept giving me a hard time to place the order. Eventually we placed the order in the U.S. -- the only order that I know of that was placed with a vendor in the U.S. from Kuwait. The end result was that by placing it with them there was a savings of over $60,000 in that equipment.

What other kinds of equipment did you purchase?

We purchased office equipment, plumbing supplies, medical supplies, you name it, it went from A to Z. They told me to get the reqs placed. "We're not looking for the best prices, we're just looking to fill the order."

So did your supervisors ever get upset because you were trying to do things the right way?

Yes, he got upset. He frowned on me getting two bids. It didn't take long to understand that if you wanted your order to go through you had to just get one quote.

Was that different from other procurement offices you've worked in?

That was foreign to any procurement function that I've ever worked in, absolutely against all procurement experience that I've ever had.

You told the Democrats that Halliburton purchased expensive embroidered towels for the Army rather than standard towels -- tell me about those.

I had placed an order for 2,500 towels with a vendor, and the vendor could not meet the due date so I canceled the order. [When I tried to place the order with another vendor] the manager wanted to change the order to have them embroidered and to have a higher-grade towel. The towels they settled on were gold with the [words "MWR Baghdad" embroidered] on them. I left before the order was placed, but I'm assuming they awarded it to the next lowest bidder.

What does MWR mean?

"Morale, Welfare, Recreation." [MWR is a unit of the Army; the towels were to be used in an MWR exercise facility.]

So did the military ask for the embroidery?

I don't think the military insisted they have MWR embroidered on them. It was not to their advantage -- all they wanted was their exercise facilities running smoothly, to make sure that the GIs had sufficient equipment, in this case towels. I don't think it matters to the military whether their towels had MWR on it or U.S. Army on it. They're not into embroidery.

So whose idea was it?

The MWR manager's.

And he's a Halliburton employee?

Yes, he works for Halliburton. For him it was ego. He said, "Geez, we want it to be a nice facility. It's a showplace, so we'll have embroidered towels." It was just like the polo shirts and other things he ordered with the embroidery. It was an ego thing.

So how much more did they pay for the embroidered towels?

It added $3.50 to $4 U.S. to the price of each towel.

[Halliburton rejected these figures. "These towels were ordered at a cost of approximately US$3 each, not the $7.50 that the former employees are alleging," Hall wrote in an e-mail. She added that there was a legitimate reason for embroidering the towels -- to "prevent pilferage." The military approved the monogramming "because it was estimated that such action would result in approximately one-third fewer towels being permanently removed from the facilities," Hall wrote. "When towels are clearly marked and easily recognizable, they are more frequently returned to the correct facility (either by patrons or by laundry staff), thereby reducing the need to constantly reorder to replenish the supply. Apparently, however, this anti-theft device is not completely fool-proof as Mr. Bunting proved that he was in possession of one of these towels without proper authorization when he presented it at the Senate Democratic Committee Hearing." Asked again about the price of the towels, Bunting said he could not provide any documentation showing that they cost more than $7. But he said Halliburton's $3-per-towel price seemed low. Halliburton did not respond to a request for documentation on the price of the towels in time for publication. Bunting denied Hall's suggestion that he'd stolen any towels. The towel he showed to the Democrats was a sample provided by the manufacturer, he said. Bunting also questioned Halliburton's theory that the towels were embroidered to prevent theft. Indeed, he speculated that that the fancy towels might make a more attractive target. "A GI going into a workout area with an embroidered towel, he says, 'I got a good souvenir to go home with.' Why would anybody take a plain unembroidered towel?"]

Why did you decide to come forward?

When I left I said to my supervisor that this was the worst-run procurement office I'd ever seen. And I planned before I left that I was going to speak up and indicate to people this was not the way you run a purchasing function. I had so little faith in the supervisors that I kept copies of all the reqs I made. I did that electronically -- I have electronic copies of 95 percent of the purchase orders.

And what do they show?

I think they would substantiate that the bulk of my orders were for under $2,500. It would show that in the purchase order logs we would skip requisition numbers to make it look like we weren't using the same vendor over and over.

What purpose did that serve?

Well, the logs maintained all of the purchase orders in a sequence. Now, I don't come to the table with clean hands, I am as guilty as anybody else. So for example we were buying PVC pipe, plumbing fixtures. We would have four or five [requests] going to the vendor, he would send back a quote. We would group two or three items together, keeping the order under $2,500. Then you would go into the log and pick a number that was 10 or 15 different from the first one, then do the rest of the orders. So it looked like the orders were done at two different times. [If all of the orders were combined into a single purchase, Bunting explained, the price would have exceeded $2,500, forcing Halliburton to seek competitive bids on the items; therefore, buyers were encouraged to combine orders only if they didn't exceed $2,500.]

Tell me more about why they wanted you to keep your orders under $2,500.

Because the more money Halliburton spends the greater their commission. The higher their costs, the more money they make. If they would have gone out and competitively bid, you probably would have gotten a lower cost. I'm sure you would have gotten a lower cost.

[Halliburton denied Bunting's claim that buyers were encouraged to keep their orders under $2,500 to avoid seeking competitive bids. Hall wrote, "Purchases under $2,500 may be made without securing competitive prices if and only if the buyer is able to determine that the price is reasonable and maintains this price reasonableness determination as part of the file." But Bunting disputed that assessment. "That was never said to us. They weren't concerned about cost -- never once did they say the price is too high. Sometimes we [the buyers] would look at something and say, 'Gee, that looks out of line,' but not at the urging of the supervisor."]

For instance I used one vendor for stationery. The guy would show up at night -- he'd show up at 6 p.m. every day looking for orders. Because it was easy I'd give him the stationery orders. Every time that I sent him a request for a quote, he was always higher. He always gave me a higher price. But he never once got any order if we put it up for competitive bidding.

We were talking about why you decided to come forward.

Yes, I wanted to point out there's a need to look at Halliburton's poor business practices and the raping of the U.S. Treasury based on how they're doing business. You know, they're spending my money and they're making a helluva buck from it.

And in Kuwait, the buyers were told not to talk to the auditors, not to talk to the press, not to talk to anybody about the buying practices we had. They would tell us that the auditors were coming and they said don't speak to them -- and if you do speak to them make sure that you put KBR in the best light possible.

Did they ask you to lie?

Well, I said to one supervisor, "You're asking us to lie to the auditors?" She didn't say no and she didn't say yes. I said I'm not going to lie to government auditors to make KBR look good. I don't need a job bad enough to lie.

But why did you go to the Democrats? Was this a political thing?

I sent a letter to Waxman because I had read his letter to the Department of Defense requesting specific information about contracts in Iraq. I said you should look at KBR's poor business practices. Somebody from his office gave me a call and said, "Tell me about Halliburton's poor business practices." I got another phone call from the Democratic policy representative. He said, "Would you mind coming to Washington to talk about this?" I said, "No, I have no problem with that." And I would be more than happy to appear at any other hearing.

I have to ask you -- are you a Democrat or a Republican?

I think I'm registered as Republican, but I have voted for as many Democrats as I have Republicans. When I'm voting I look for the best candidate that can do the job. Did I vote for Bill Clinton? Absolutely I did not, I thought he was a jerk. Did I vote for Bush? Yes, I did vote for Bush. But I think Bush is doing a poor job in Iraq. If it continues, Bush will not be the president in 2005.

I don't think politics enters into good business. I don't think Cheney has influence over this whatsoever, he's gone. You look at the current people running Halliburton, this is a deep-seated culture we're talking about.

But do you think that what happened was deliberate -- was Halliburton trying to keep the costs high? Or were they just poor business people?

I don't think they're poor business people at all. Halliburton has been very successful. Did they know about what was happening in Kuwait? A manager from Halliburton spent four or five weeks in Kuwait in the June-July period. Certainly he knew what good purchasing practices were, and he had the opportunity to put things right. By their failure to correct it, they condoned it.

Has Halliburton contacted you since you came forward?

I have not heard from Halliburton. If you're asking whether I'm afraid that I'm going to be taken to court -- I gave that a lot of thought. If that happens it happens, it's beyond my control. But then everything that I have will be on the table. If I were any company I wouldn't want public view of my business practices, even if I had the best business practices.

Say what you want, Halliburton is servicing the military. They have done this for a while so they're good at it. Anybody could do the same job. There are lots of companies that can manage very large projects and do it as well.

How have other people reacted to your testimony?

A couple people said I was nuts for speaking up. Some folks have said, "I really admire you for having the courage to stand up." The reason I have no problem with you using my name is, if there's a problem and you're not willing to stand up and be counted -- if you want to hide behind "anonymous" or "reliable source" -- then you may as well not say anything. If anybody wants to talk to me I'd be more than happy to talk to them. I have nothing to hide and I recognize that, because I participated in this, I'm as guilty as the guys doing it.

By Farhad Manjoo

Farhad Manjoo is a Salon staff writer and the author of True Enough: Learning to Live in a Post-Fact Society.

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