The Center for Public Integrity

Documents obtained by the Center for Public Integrity show that the Army Corps of Engineers ignored sharp objections by its top procurement official concerning Halliburton contracts in Iraq and the Balkans.

The most recent controversy surrounds the extension of a troop-support contract in the Balkans held by Kellogg, Brown & Root, a Halliburton subsidiary. Bunnatine Greenhouse, the contracting official, objected to the 11-month extension worth an estimated $165 million because she felt it was not justified. She has asked for an independent investigation of possible procurement fraud.

Time magazine broke the story regarding Greenhouse's allegations last week. Since then, the Center has obtained additional documents—none of which was originally included among those the Army Corps supplied to the Center in response to a Freedom of Information request and follow up lawsuit against the Corps. The new documents include the letter Greenhouse's lawyer sent to Les Brownlee, the acting Army Secretary. That letter mentions that Greenhouse came under pressure from individuals "associated with favorite companies" and experienced "repeated interference" when dealing with KBR. The documents also contain internal Army Corps e-mails and a version of the justification review document which includes notes from Greenhouse such as "Not a valid reason for extension" and "I cannot approve this."

No-bid contracts have accounted for more than 40 percent of Pentagon contracting since 1998, the Center for Public Integrity revealed today in an exhaustive report on Defense Department contracting.

Over the past six years, the Pentagon has awarded some $362 billion to companies without competitive bidding. In fact, of the top ten contractors, only one, SAIC, won more than half its dollars through full and open competition. All the others won a majority of their dollars through sole source and other no-bid contracts.

The report, which covers the period 1998-2003, also documents the extent to which the Defense Department has become dependent on outside contractors, finding that every annual increase in defense spending has been matched by an equal increase in contracting. Fully half the Defense Department budget—some $900 billion since 1998—has gone out the door to contractors rather than paying for direct costs such as payrolls for the uniformed armed services.

And yet the Pentagon lacks the most basic information on its service contract workforce, including the number of contract employees it uses. When, in 2002, the Secretary of the Army declared that the Army lacked "visibility" over its service contract workforce, he called for its collection. By mid-2004 the data gathering had still not begun. The Defense Department, which during the 1990s reduced by almost half the number of officials who oversee procurements, ended up hiring firms like Booz Allen Hamilton, Jefferson Solutions and the Rand Corporation to help manage its contractors.

One of the biggest contracts awarded in the war in Iraq went to Kellogg Brown & Root, a key subsidiary of Halliburton Co., the firm Vice President Dick Cheney ran as CEO before he stepped into the White House and became one of the prime movers urging the president to invade Iraq. Of the $4.3 billion in defense contracts Halliburton won in fiscal 2003 only about half were awarded based on competitive bidding. Another $1.9 billion in contract dollars was awarded on the basis of "urgency" without bidding and without going to any other contractors.

The connection between Halliburton and the Vice President has led to no end of speculation about how that particular firm was chosen. While this report does not address that issue specifically, it does examine the practice of awarding no-bid contracts to well-connected defense contractors. Indeed, one might pose a new question on the role of contractors in the American military: Was the war in Iraq an example of the Pentagon's new way of doing business, or was it an outgrowth of a way of doing business that has been much longer in duration, albeit conducted off the field of battle without a worldwide—or even any—audience?

To find the answers, the Center began in early 2004 to investigate the patterns of Defense Department contracting. Our prime source was the Pentagon's own procurement databases—public information that had been posted for years on an obscure Defense Department Web site.

Titan is not alone. Thirty percent of all defense contract money reported as going to small businesses and special minority-owned businesses has ended up in the hands of the top defense companies, the Center for Public Integrity has found.

Between 1998 and 2003, the Pentagon awarded more than $47 billion in contracts designated for small businesses to companies that have each earned more than $100 million from Defense Department contracts alone during that six year period.

More than half of the top 100 defense contractors—55 of them in all—received at least $10 million in contracts with small business designations over the past six years. All told, the small business contracts won by the largest defense firms amounted to $9.3 billion, the Center found.

Titan, the 34th largest defense contractor, has received more than half a billion dollars in preferential small business contracts by absorbing smaller companies and continuing to win awards on their small business contracts. This large amount accounted for 23 percent of the $2.39 billion in defense contracts the company received from 1998 to 2003.

Nearly 45 percent of Titan's small business awards came in the form of small business set asides, which not only carry a preferential classification for government contracting, but are exclusively reserved for small companies. Nearly 80 percent of the $176 million Titan received from 2000 to 2003 through awards on contracts SenCom Corp. won were recorded as funds set-aside to go to small businesses.

"We have no problem with the government procurement systems and how they handle these things," Titan spokesperson Ralph 'Wil' Williams told the Center.

Beltz Newtech specializes in roofing, exterior commercial painting and even does some waterproofing. Beltz said he started the company 30 years ago after working as a school teacher and operates it with his wife, Karen, who is the company's vice president.

Beltz told the Center for Public Integrity he was unaware that the Pentagon reports his company as the recipient of a $245 million, cost plus contract that calls for working on large blast thermal simulators while providing "nuclear effects services" at White Sands Missile Range in New Mexico.

"I guess they made some type of mistake," Beltz told the Center. "Either that or they got me mixed up with another company."

Beltz's contract listing by the Department of Defense is indeed a case of mistaken identity—one of hundreds of errors the Center found while going through the Pentagon's database of awarded contracts.

A Center analysis of the Defense contracts database found there have been more than 2.2 million records entered during the past six years detailing more than $900 billion in Pentagon spending. But these records often have minor errors that are attributable to the Defense Department's antiquated system that was set up decades ago.

In the case of Beltz's company, the Pentagon confused the small roofing contractor with the New Mexico Technology Group, LLC, which is located on an Army base in White Sands, N.M., rather than in a house near a golf course in Hilton Head, S.C. But both companies do share similar shortened company names: Newtech and Newtec, respectively.

The case of mistaken identity was repeated 100 times during the course of four years, and the Pentagon listed Beltz Newtech, rather than New Mexico Technology Group, as winning more than $200 million of contracts.

Good morning. The Center for Public Integrity is a nonprofit, nonpartisan organization that does investigative reporting and research on public policy issues in the United States and around the world. Since 1990 the Center has produced more than 250 investigative reports and 13 books. In the past seven years, the Center's work has been honored 26 times by the Society of Professional Journalists, Investigative Reporters and Editors, and other respected organizations.

The Center is funded by foundations and individuals and the sale of our publications. We do not accept advertising or contributions from companies, labor unions, governments or political parties. We do not take positions or lobby on specific policy or legislative matters. The names of our major donors and other information about the Center are available on our award-winning Web site, www.publicintegrity.org. We gratefully acknowledge support for this project today from the Town Creek Foundation, the New York Community Trust—Everett Philanthropic Fund, and Vincent Ryan.

The starting point and primary source material for this project was a collection of the Defense Department's annual Contract Action Data Files from fiscal years 1998-2003. These databases, totaling a combined 2.2 million records, document all activities concerning contracts with values exceeding $25,000. Each record includes a wealth of detail, based on the Pentagon's DD Form 350, which must be filled out every time a contract action takes place.

All the data refers only to contracts authorized to the prime contractor. Subcontractor information is not publicly released.

All references to "contracts" throughout the report refer to the dollar amount of the contracts, rather than the number of contracts. For instance, a statement that a particular company got two-thirds of its contracts through sole-source bidding would mean two thirds of the contract dollars were won through sole-source bidding.

The Defense Department has been compiling this data since 1966, and all the databases are available for downloading on the web at www.dior.whs.mil/PEIDHOME/guide/procoper.htm.

Among the data include in those records are the prime contractor's name, address, Dun & Bradstreet ID number, corporate parent ID (unfortunately, not always accurate), the contracting office, the dollar amount of the new or amended contract, the location where the work was performed, a description of the product or service provided, and detailed information about the type of contract, whether it was competitively bid or not, whether it went to a small or large business—even how many bidders responded.

Databases from earlier years, as far back as fiscal 1984, were also used to track long-term shifts in the goods and services the Pentagon bought.

As war fighting came to dominate the news in the wake of the Sept. 11, 2001, terrorist attacks, names like Halliburton and Bechtel became as familiar to the average American as the names of any general, division or soldier in the field. Fallujah first attracted wide public attention when insurgents killed and crowds mutilated the remains of four employees of Blackwater Security Consulting. Employees of CACI International and Titan were accused of taking part in the abuse of prisoners at Abu Ghraib. That the use of contractors on the battlefield and in nation building in Iraq and Afghanistan is front page news comes as a surprise to many, but it is a consequence of a decades-long policy to keep government smaller by relying on the private sector.

What the War on Terror has shown is the extent to which private contractors have become part and parcel of Pentagon operations. Where once contracts went to build ships, planes, tanks and missiles, today the majority of contract dollars buy services—the time of people—and information technology. Increasingly the private workforce works alongside officials, in Pentagon meeting rooms as well as on Iraqi battlefields, performing what citizens consider the stuff of government: planning, policy writing, budgeting, intelligence gathering, nation building.

In March 2002, a year before the start of the Iraq war, then-Secretary of the Army Thomas White told top Defense Department officials that reductions in Army civilian and military personnel, carried out over the previous 11 years, had been accompanied by an increased reliance on private contractors about whose very dimensions the Pentagon knew too little. "Currently," he wrote, "Army planners and programmers lack visibility at the Departmental level into the labor and costs associated with the contract work force and of the organizations and missions supported by them."