Protests could put brakes on new Iraq logistics contract

Faced with the prospect of missing out on the Army's most lucrative logistics contract in Iraq, a pair of teams of defense contractors is challenging the service's decision to award the work to three rival companies.

Last week, Contingency Management Group LLC, a team composed of AECOM Government Services, Shaw Group and PAE Government Services, filed a protest with the Government Accountability Office, claiming that the Army's Sustainment Command improperly evaluated the group's proposal for the Logistics Civil Augmentation Program (LOGCAP) IV contract. The team is seeking a stay of the new contract until GAO can review the July 11 protest.

Two days later, IAP Worldwide Services Inc., a Cape Canaveral, Fla., contractor, filed its own protest, also citing improper technical or price evaluations, according to Michael Golden, GAO's chief procurement attorney. IAP led a team of contractors that included industry giants Lockheed Martin, CACI and Blackwater. Officials with Contingency Management Group and IAP both declined to discuss the reasons for the protest.

The Army awarded its mammoth 10-year LOGCAP IV contract last month to three firms: the incumbent contractor, Kellogg, Brown and Root Services of Houston; former contract holder DynCorp International LLC of Fort Worth, Texas; and Fluor Intercontinental Inc. of Greenville, S.C. The three companies are each capped at $5 billion per year, although the Army does not expect the firms to reach the maximum value in any given year.

A fourth contractor, Serco Inc. of Vienna, Va., was awarded a $225 million support contract last February. The Army says Serco will assist in its planning and provide independent cost estimates, but will not play any oversight role or conduct any inherently governmental work.

In an e-mailed statement, KBR deferred questions about the protests to the Army, stating only that the company is "proud to have been chosen as one of three logistics support providers under the LOGCAP IV contract. We look forward to continuing our service to the U.S. forces deployed in the Middle East."

The three prime contractors will compete to deliver fuel, water and food, as well as field operations such as postal services, laundry and sanitation, to troops stationed in Iraq and Afghanistan. The indefinite quantity/indefinite delivery contract has a one-year base with nine option years and could be worth as much as $150 billion.

The use of multiple contractors is a departure from the sole-source strategy the Army has employed since the first LOGCAP contract was awarded in 1992. The change is "designed to enhance competition and reduce overall risk," said Daniel Carlson, a spokesman for the Army.

Previous incarnations of the logistics contract relied primarily on cost-plus task orders in which the Army and the contractor negotiated a price based on an estimate and adjusted the cost as needed. The government then paid the contractor a base reimbursement fee -- typically 1 percent -- on every task order and an additional 2 percent award fee if the work was done efficiently and honestly.

But watchdogs say the contract has been prone to abuse. KBR, which until recently was a subsidiary of Halliburton, was roundly criticized for its work on the 2001 LOGCAP III contract. Reports by GAO, the Defense Department inspector general and the Defense Contract Audit Agency found KBR overbilled the government for fuel and failed to justify $1.8 billion worth of work in Iraq and Kuwait.

And just days after the Army awarded the LOGCAP IV contract, the Special Inspector General for Iraq Reconstruction released a report alleging that KBR provided its employees with better housing than U.S. soldiers, overspent on food by $4.5 million and failed to provide accurate measurements of the fuel services it provided. KBR is in the process of reviewing the report, company spokeswoman Heather Browne said.

DynCorp, meanwhile, has been rapped for providing vague invoices on a State Department contract in Iraq, while Fluor was heavily criticized for its work on a temporary housing contract for Gulf Coast residents in the wake of Hurricane Katrina.

The Army plans to begin using its new LOGCAP IV contract in October, although the protests could delay its implementation. KBR's current LOGCAP contract expires in December, but the Army could exercise an option and extend it if needed.

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