The Center for Public Integrity

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.

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.

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."

With scores of revolving door connections, more than $1 million in campaign contributions and clients that receive most of their contracts from the Pentagon without competition, only one defense lobbying firm can claim to give its clients "an inside track to business opportunities with the federal government."

The PMA Group, a lobbying firm that specializes in defense contracting, has reported receiving $21.7 million in lobbying fees since 1998 from large defense companies—the most paid to any defense lobbying firm, according to a study by the Center for Public Integrity.

A PMA spokesman said he would not comment on the Center's report.

The fees paid to PMA appear to have paid off for these 41 defense contractors and their parent companies, who collectively won $266 billion in contracts from the Pentagon during the last six years. That amounts to almost 30 percent of the dollar value of all contracts awarded by the Department of Defense.

Though these companies spent another $121 million employing in-house lobbyists and occasionally other lobbying firms, PMA clients' total lobbying versus contracts works out to a ratio of almost $1,859 in contracts for every dollar spent on lobbying.

Of the $266 billion that PMA clients and their parents received in defense contracts, $167 billion—nearly two out of three dollars—were received from contracts that were awarded without "full and open" competition. In fact, PMA clients account for 47 percent of all such non-competitive contracts handed out by the Pentagon since 1998.

Lobby firms like PMA have become a staple of political influence. In all, defense contractors have reported spending $537 million on outside lobbying firms like PMA during the last six years, while they have spent $1.4 billion on in-house lobbying.

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.

The oil services company Halliburton, largely through its subsidiary Kellogg, Brown & Root, has received more revenue from government contracts in the last year than from 1998 through 2002. In 2003, when the company had record revenue of $16.3 billion, Halliburton received contracts from the Department of Defense worth $4.3 billion, while in the previous five years it obtained less than $2.5 billion from the military, according to an analysis by the Center for Public Integrity.

Although figures are not yet available for 2004, government revenue is bound to increase as a result of the contracts the company has won for work in postwar Afghanistan and Iraq, which so far potentially totals $11.4 billion. Some of that work was actually awarded earlier; many of the company's contracts extend for multiple years.

In 1998, Halliburton's total revenue was $14.5 billion; that year, the company got contracts from the Pentagon worth $284 million. Two years later, revenue had dropped to just under $12 billion while work under DoD contracts more than doubled. In 2002, DoD awarded Halliburton tasks worth $485 million while the company's revenue was $12.6 billion.

Of the more than 150 American companies that together have received U.S. government contracts potentially worth more than $51 billion for postwar work in Afghanistan and Iraq, Halliburton is by far the largest recipient of contracts awarded in the two countries.

As part of its continuing Windfalls of War project, the Center for Public Integrity has been compiling information on contracts awarded by the U.S. government for support in Operation Enduring Freedom and Operation Iraqi Freedom. The Center has compiled its list of contractors and contract awards through information obtained from 95 requests and appeals filed under the Freedom of Information Act or through official government and company sources.

The Center for Public Integrity has obtained the 11 work orders worth $66.2 million awarded to CACI International Inc., the company at the heart of the Abu Ghraib prison abuse scandal in Iraq. Details of the work orders did not come to light until last April, when reports emerged of U.S. interrogators allegedly abusing prisoners at the notorious Baghdad prison.

In Iraq, Virginia-based CACI provides "interrogation support and analysis work for the U.S. Army in Iraq," according to the company. Job descriptions obtained by the Center show that CACI employees performed a variety of tasks in Iraq. Contractors were tasked with missions such as "debriefing of personnel ... intelligence report writing/quality control, and screening/interrogation of detainees at established holding areas." These contractors worked closely with military personnel. For example, those hired as interrogators were assigned to "coordinate and work in conjunction with [Military Police] unit and [Military Intelligence] interrogation units assigned to support operations of the Theater/Division Interrogation Facility."

First reported by The New Yorker, an Army investigation led by Major General Antonio M. Taguba, accused a CACI employee of being complicit in the physical abuse of prisoners. There have been several government investigations into the role of CACI and its employees surrounding the prison scandal. The firm says it is cooperating with the government's probes and has denied any wrongdoing.

More than 150 American companies have received contracts worth up to $48.7 billion for work in postwar Afghanistan and Iraq, according to the latest update of the Center for Public Integrity's Windfalls of War project.

This figure represents an increase of 82 companies and more than $40 billion since the Center first released its study of contracts awarded to U.S. companies for postwar work in Afghanistan and Iraq on Oct. 30, 2003.

The Center has continued to file Freedom of Information Act requests with, among others, the Department of Defense, the State Department and the U.S. Agency for International Development in hopes of getting the complete picture of U.S. contractors involved with Operation Iraqi Freedom and Operation Enduring Freedom. As was the case with the Center's initial report, contractors and dollar values have only been included in the overall list if there was authoritative information from either an official government source or a company source.

Since the Center's first release in October 2003, there has been more scrutiny of these postwar contracts by Congress, the media and various government agencies. This was partly due to the revelation that employees of private contractors Titan Corporation and CACI were present during the alleged torture of Iraqi prisoners at the Abu Ghraib prison.

Over a period of six months, the contracted value of one Iraqi task order of Halliburton subsidiary Kellogg, Brown & Root grew by a multiple of 36 and was modified 21 times, according to previously classified documents obtained by the Center for Public Integrity.

The task order, which was part of the March 8, 2003, no-bid Iraqi oil restoration contract awarded by the Army Corps of Engineers to KBR, increased from its original ceiling of $24 million to $887.37 million. Under task order 0005, which originally had a performance period of 90 days, KBR was responsible for importing fuel to Iraq. KBR did not break the $7 billion ceiling that had been specified for the sole-source contract, but the frequent modifications to the task order, which lays out specific work requirements under the contract, have some questioning the process.

The General Accounting Office, which did not specifically investigate the KBR oil contract, expressed concerns about revisions to contracts and task orders for work in Iraq. "Task orders were frequently revised. These revisions generated a significant amount of rework for the contractor and the contracting officers. Additionally, time spent reviewing revisions to the task orders is time that is not available for other oversight activities," David M. Walker, the comptroller of the General Accounting Office, told a June 15 Congressional hearing on contracting and the rebuilding of Iraq. "While operational considerations may have driven some of these changes, we believe others were more likely to have resulted from ineffective planning."

A private military company that has won contracts to assist the U.S. military in Iraq wrote the Pentagon rules for contractors on the battlefield.

Since 1997, Military Professional Resources Inc., which has two contracts (see the first for integration of Iraqi forces, and the second for linguists) worth a total of $2.6 million related to reconstruction in Iraq, has also produced Field Manual 100-21, also known as Contractors on the Battlefield. The manual "established a doctrinal basis directed toward acquiring and managing contractors as an additional resource in support of the full range of military operations," according to the company's Web site.

Michael B. Williams, the MPRI employee who is the primary author of the most recent edition of the manual, said the company started "with some basic guidelines" from the Army. "For the most part, however, this was a clean slate," he told the Center for Public Integrity.

The Army reviewed MPRI's draft, submitted revisions to the company and published the manual on January 3, 2003.

While the new manual contains detailed instructions on how deployed commanders should use contractors – from force protection measures to what kind of shoes contract employees should bring – it makes no mention of intelligence gathering or restrictions on contractor roles.