The Army snatched back $20 million from the giant military contractor Halliburton this week after finding that it had improperly charged taxpayers for security work it subcontracted to North Carolina-based Blackwater USA.
A top Army contracting official revealed the penalty Wednesday in testimony before the U.S. House Oversight and Government Reform Committee on contracting fraud and waste in Iraq.
The day's hearing was based on information from a series of News & Observer stories in 2004 that investigated Blackwater's work in Iraq and the deaths and public mutilation of four of its workers -- Wesley Batalona, Scott Helvenston, Michael Teague and Jerry Zovko.
Relatives of all four testified Wednesday, sometimes in tears, along with Blackwater officials and a bewildering chain of contractors and subcontractors.
Tina Ballard, deputy assistant secretary of the Army for policy and procurement, denied last fall that Blackwater had done security work under a Halliburton subsidiary -- work that the Army was supposed to have done. She said Wednesday that the Army had new information showing that Blackwater was actually providing security for Halliburton operations beginning around the time the four men died. The $20 million was the Army's estimate of the ultimate cost to the Pentagon of the security work, she said.
Rep. Henry Waxman, a California Democrat, had sought for two years to make Blackwater a case study on the problems of the booming and murky world of military contracts. After the Democrats took control of Congress last month, he got the muscle to do it when he was named chairman of the oversight committee.
Relatives of the four dead men -- two mothers, a wife and a daughter -- testified that Blackwater cut corners on equipment and manpower, cuts that cost the lives of their loved ones March 31, 2004.
Andrew G. Howell, an attorney for Blackwater, testified that the company provided what the men needed for that type of mission. The things family members said were missing that day, including armored vehicles, additional men and machine guns, had been determined by "everyone involved" to be unnecessary, Howell said.
A Blackwater gripe
But Waxman produced an e-mail message sent the night before the men died to company officials in the United States and Kuwait. In it, a Blackwater official in Baghdad complained of a shortage of manpower and equipment, including guns and armored trucks.
Republican committee members charged Wednesday that Waxman was playing politics by picking on Blackwater. Erik Prince, the company's owner, has contributed heavily to Republican politicians.
Several Republican committee members entered into evidence a Dec. 13 letter that Dan Callahan, the lead attorney for the four families, sent to Nancy Pelosi, the new speaker of the House. Callahan wrote that Congress should investigate Blackwater and called it an "extremely Republican" company. A copy of the letter also went to Waxman.
Rep. Virginia Foxx, a North Carolina Republican, called the day's hearing a "gotcha situation" and said the committee should focus on broad problems rather than specific companies.
Waxman said he had been investigating Blackwater's contracts for two years and had no idea of the political affiliations of anyone involved.
The four Blackwater men were ambushed in Fallujah, shot, then burned and mutilated in images captured on television and spread around the world. Two of the bodies were dragged behind a car, then lashed to a bridge.
Their deaths touched off weeks of violence and ended Marine Corps plans for pacifying the city.
The resulting battle, Waxman said, led to the deaths of 27 U.S. troops and more than 800 insurgents and Iraqi civilians. Military observers, he said, think it also fueled an escalation of the insurgency.
The Blackwater men were at the bottom level of stacks of contracts. The arrangement was so bewildering that Howell, the Blackwater attorney, testified Wednesday that it wasn't even clear to the company which Pentagon contract the four men were working under that day.
The men signed individual contracts to be paid $600 a day by Blackwater.
According to contracts obtained by The News & Observer, Blackwater added a 36 percent markup, plus overhead, then passed the bill to a Kuwaiti company called Regency Hotel.
Regency added its costs, including those for vehicles and weapons, and a profit, then sent an invoice to a German food-service company called ESS that cooked for the troops and also helped build facilities. ESS added its costs and profit and sent its bill to either Fluor or Halliburton subsidiary KBR, which also added overhead and a profit.
The U.S. government got the final bill.
Under the Fluor contract, Blackwater's security work would have been allowed. Under the KBR deal, it would not have been.
Under questioning Wednesday, Ballard, the Army official, said that because the Army couldn't get details about subcontractors, she had no way to tell how many security operatives worked on Army contracts.
Rep. Christopher Shays, a Connecticut Republican, said contractors were necessary to free troops to fight but that he was amazed that the military had no idea how many worked for it, or that prime contractors such as Halliburton were so distant from subcontractors that they had no idea whether subcontractors were performing duties such as security.
Ballard said the Army had nearly 27,000 contracts of all kinds in Iraq.
"You've got close to 27,000 contracts in Iraq, and you don't know how many subcontractors you have?" Waxman asked.
"Correct," Ballard replied.
"And you don't know how many subcontractors the subcontractors have?"
"Correct," she said.
Shays leaned forward.
"Tell me why I shouldn't be concerned about that," he said.