[NV Greens] Fwd: [usgp-dx] Military faces $4 billion budget gap with Halliburton (Wall St Journal; Reuters)

Thu Feb 3 23:45:18 PST 2005

>
>
>Military Facing Budget Gap with Halliburton --
>WSJ
>
>Reuters, Feb 1, 2005
>http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=7496218
>
>
>NEW YORK (Reuters) - The top U.S. commander in
>Baghdad is facing a budget gap of at least $4
>billion between what Halliburton Co. says it will
>cost to provide services for U.S. troops for a
>year and what the government has budgeted, the
>Wall Street Journal reported on Tuesday.
>According to the article, in December
>Halliburton's Kellogg Brown & Root unit, which
>provides food, mail, telephones and other basic
>services to U.S. troops in Iraq, submitted an
>estimate to the Pentagon for expected spending in
>the year starting May 1, based on a list of Army
>requirements.
>
>The company said its costs for the year could
>exceed $10 billion, the newspaper said.
>
>But the Army has budgeted just $3.6 billion to
>support the KBR-provided services during the same
>period, the newspaper said.
>
>Since then, the newspaper said the Army has been
>trimming its requests to close the gap.
>
>Gen. George Casey told the Wall Street Journal
>that the difference had been reduced to closer to
>$4 billion. "To say that we're not worried would
>not be true. Someone has made some assumptions
>that have driven the costs through the roof," he
>told the newspaper.
>
>Casey told the newspaper that he was trying to
>determine whether the spiraling costs reflected
>in KBR's estimate were due to a spike in proposed
>charges by KBR or a substantial increase in
>requests by the Army. He told the publication
>that a team of Army experts was probing that
>question.
>
>He said that the problem could lie within the
>government, as the Army's needs for troop support
>far exceeded the Pentagon's budget ceiling for
>those services, the article said.
>
>Halliburton declined to comment on Tuesday but
>spokeswoman Wendy Hall had said in a statement
>that it would be inaccurate to compare KBR cost
>estimates with what the military actually ended
>up spending.
>
>Since the inception of the current troop-support
>project, the newspaper quoted Hall as saying:
>"KBR has provided estimates to the Army of nearly
>$16 billion, while we have only been funded to
>perform $9.8 billion worth of work."
>
>The newspaper said that currently, the company
>operates more than 80 sites in Iraq, ranging from
>military bases to embassy compounds. Last year
>alone, the Army paid KBR $6.9 billion for
>troop-support services in Iraq, the article said.
>
>
>But the newspaper said Pentagon auditors have had
>a series of disputes with KBR for well over a
>year, largely focused on what the auditors have
>described as KBR's sluggishness in fully
>accounting for past spending in Iraq.
>
>© Reuters 2005. All Rights Reserved.
>
>
>*  *  *  *  *
>
>
>Military Is Facing Wide Budget Gap With
>Halliburton
>
>Estimates From Contractor On Future Spending
>Exceed Pentagon Plans by $4 Billion
>
>By Neil King Jr. and Greg Jaffe, Staff Reporters
>Of The Wall Street Journal
>
>The Wall Street Journal, February 1, 2005
>http://www.wsj.com
>
>
>With military costs rising in Iraq, the top U.S.
>commander in Baghdad is facing what he calls an
>"unaffordable" budget gap of at least $4 billion
>between what Halliburton Co. says it will cost to
>provide food, housing and other services for U.S.
>troops for a year and what the government has
>budgeted.
>
>The difference dramatizes the cost crunch facing
>the Pentagon as the bill for the U.S. involvement
>in Iraq continues to escalate well beyond initial
>White House estimates. Before the war began in
>March 2003, the administration said it would cost
>about $60 billion. The price tag is now more than
>three times that figure, and growing. President
>Bush is expected to soon send to Congress an $80
>billion supplemental spending bill, largely to
>cover Iraqi operations, pushing the tab for the
>current fiscal year, which began on Oct. 1, to
>$105 billion.
>
>In December, Halliburton's giant Kellogg Brown &
>Root unit, which provides basic services such as
>food, postal service and telephones to the
>150,000 U.S. troops in Iraq, submitted a detailed
>estimate to the Pentagon for expected spending in
>the year starting May 1, based on a list of Army
>requirements. The company said its costs for the
>year could exceed $10 billion.
>
>But the Army has budgeted just $3.6 billion to
>support the KBR-provided services during the same
>period -- nearly $7 billion less than KBR's
>estimate.
>
>Since then, the Army has been trimming its
>requests to close the gap. In an interview, Gen.
>George Casey said the difference now stands at
>closer to $4 billion. Still, he said, "To say
>that we're not worried would not be true. Someone
>has made some assumptions that have driven the
>costs through the roof."
>
>Army officials suggest that ultimately their wish
>list of services for troops will have to be
>further slashed, though it's not clear how much
>basic services will be reduced for soldiers -- or
>even how much they can be without causing
>significant disruptions. "It is time to focus our
>attention on reducing the overall costs without
>degrading the welfare of our deployed forces,"
>Gen. Casey wrote in a late December letter to the
>U.S. Army Audit Agency, the unit charged with
>reviewing Army contracts.
>
>Officials say they also may end up pushing inside
>the Pentagon and on Capitol Hill for more money
>to pay for troop support.
>
>Gen. Casey said in an interview last week that he
>still was trying to determine whether the
>spiraling costs reflected in KBR's estimate are
>due to a spike in proposed charges by KBR or a
>substantial increase in requests by the Army. A
>team of Army experts is probing that mystery, he
>said. He said that the problem could lie within
>the government, as the Army's needs for troop
>support far exceeded the Pentagon's budget
>ceiling for those services as overall security
>costs have mounted.
>
>But several factors are clearly contributing
>broadly to escalating costs. Among them is the
>stubborn insurgency that has boosted the expense
>of transportation and security. Another factor is
>the U.S. move to increase troop strength in Iraq
>to 150,000 before and during this week's
>election, which put in place substantially more
>troops currently than had been expected in
>earlier planning. In addition, partly because of
>the insurgency and elections, the military has
>been shifting resources and troops away from
>large concentrations into smaller bases around
>the country, adding further to costs.
>
>Halliburton spokeswoman Wendy Hall played down
>the significance of the difference, saying in a
>statement that it would be inaccurate to compare
>KBR cost estimates with what the military
>actually ends up spending. Since the inception of
>the current troop-support project, she said, "KBR
>has provided estimates to the Army of nearly $16
>billion, while we have only been funded to
>perform $9.8 billion worth of work."
>
>The current flap follows a series of dust-ups
>between the Pentagon and Halliburton, its main
>contractor in Iraq, over proper bookkeeping and
>pricing for the company's work in Iraq.
>
>KBR has played a unique role among contractors in
>Iraq thanks to a vast contract it won in 2000
>that made it the main provider of support
>services to U.S. troops across the Middle East.
>
>Currently, the company operates more than 80
>sites in Iraq, ranging from military bases to
>embassy compounds, at which it provides
>everything from showers and telephone service to
>laundry, meals and housing. KBR workers live
>alongside the troops and see to nearly all of
>their daily needs. KBR was the first private
>contractor to enter Iraq, and has been in charge
>nearly from the start of establishing permanent
>bases there and equipping them with basic
>services such as showers and mess halls.
>
>The Pentagon has spent nearly as much on KBR's
>wide-ranging logistical services contract as on
>all other private contractors doing
>reconstruction work in Iraq combined. Last year
>alone, the Army paid KBR $6.9 billion for its
>troop-support services in Iraq, pushing the total
>bill since the middle of 2003 to nearly $10
>billion.
>
>But Pentagon auditors have had a series of
>disputes with KBR for well over a year, largely
>focused on what the auditors have described as
>KBR's sluggishness in fully accounting for past
>spending in Iraq. The company has been accused of
>overcharging for fuel shipments from Kuwait and
>for millions of dollars worth of meals at dozens
>of military bases in Iraq.
>
>KBR has denied overcharging for fuel. The dispute
>over dining-facility bills remains open, with the
>Army still not having decided whether to demand
>significant reimbursements from KBR. Pentagon
>auditors, meanwhile, are gathering information to
>compile a series of final bills going back to
>mid-2003.
>
>Under KBR's arrangement with the military, the
>company works on a "cost-plus" basis, under which
>it charges only for services provided, adding on
>a mark-up for profit. Some military officials
>have suggested shifting to a fixed-price
>contract, paying Halliburton a set fee for
>services that is determined in advance, but no
>decision has been made.
>
>The looming budget gap has caused deep concerns
>within the Army, and prompted Gen. Casey in
>December to order Army auditors to seek out ways
>to "aggressively" reduce costs for supporting
>U.S. troops in Iraq. The Army, Gen. Casey said in
>his letter to Army auditors, had to find new
>efficiencies that would slash costs and identify
>"areas vulnerable to fraud, waste and abuse."
>
>In a letter sent to Army budget and acquisition
>officials last week, which was reviewed by The
>Wall Street Journal, Gen. Casey wrote that costs
>under the logistical-support contract were
>"unaffordable," exceeded "available funding
>ceilings to support...the entire United States
>Central Command area of responsibility," and had
>to be trimmed. Central Command is charged with
>oversight of all military operations in the
>Middle East.
>
>He ordered Army officials to come up with a new
>list of requirements that "will result in a
>contract that is affordable, maintains an
>acceptable living standard for our service
>members, and is defendable to Army...and
>congressional reviews."
>
>In the letter, Gen. Casey said he plans to shift
>to what's called an "Alpha Contracting process,"
>under which Army officials determine reasonable
>prices for services in direct discussions with
>KBR. Gen. Casey said in the letter that one of
>the problems is a "current lack of
>standardization" in the contracting process
>across Iraq, which has led to services being
>provided at various bases in excess of the actual
>troop numbers.
>
>During the last quarter of 2004, the Army racked
>up a troop-support bill of about $18 million a
>day. The daily rate starting in May, under the
>estimate that KBR put forward late last year,
>would put that figure at about $28 million a day.
>
>Halliburton's Ms. Hall said that the figures
>sprang from "estimates of the cost to satisfy
>Army requirements as detailed by our customer."
>She said that "KBR only performs the work once it
>is directed and funded by the Army."
>
>Houston-based Halliburton recently said it plans
>to put KBR, which has been losing money, on the
>block, a move widely seen as an aim to boost
>Halliburton's value.
>
>
>
>
>
>
>
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-- 
Paul Etxeberri

"Forests precede civilizations and deserts follow"   ---Chateaubriand