The Army will not hold a new competition for support services in Iraq, allowing KBR to maintain control of the multibillion-dollar contract until U.S. forces withdraw from the country in December 2011.
The Army Sustainment Command announced on Wednesday that KBR will continue to operate under the third version of the Logistics Civil Augmentation Program contract. KBR's current LOGCAP III task order for base life support services expires at the end of August. The Army will extend the task order through the end of 2011, allowing KBR to win an additional $568 million in work, the Army said.
The LOGCAP IV solicitation, which would have been issued this month, has been canceled and bids from two competing firms have been returned.
Lawmakers who have been heavily critical of the contractor's performance under the LOGCAP III contract were skeptical of the Army's decision, announced only hours after the Justice Department joined a false claims lawsuit against KBR alleging kickbacks from two other firms for work in Iraq.
"The Army has a big burden to demonstrate that a decision to not compete is in the best interest of the military and American taxpayers," said Sen. Claire McCaskill, D-Mo., chairwoman of Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight. "We will hold their feet to fire and continue to demand accountability on this decision."
The Army said it was aware of lawsuit, but felt comfortable proceeding nonetheless with KBR. "The government and KBR have made significant improvements in operations and oversight of LOGCAP III," said Daniel Carlson, spokesman for the Army Sustainment Command.
Earlier this week, McCaskill, Sen. Scott Brown, R-Mass., the subcommittee's ranking member, and Sen. Susan Collins, R-Maine, wrote to Defense Secretary Robert Gates, asking for the basis and justification for not holding a new competition for the Iraq work.
"A decision by the Army not to implement the additional oversight and cost savings measures of LOGCAP IV does not appear to be in the best interests of the taxpayer or the department," the senators wrote.
Army officials said they are meeting with lawmakers and their staffs this week to provide details about the decision.
Mark Williams, president of KBR for Infrastructure, Government and Power, said in a statement that the decision to keep KBR on the contract "was based on input from theater commanders, the anticipated cost of the transition and contractor performance."
KBR won the sole-source LOGCAP III contract in December 2001. The contract is now valued at $35.7 billion. After pressure from Congress and multiple reports of cost overruns and poor contract performance, the Army moved in 2007 to transition the work to a competitive structure.
Under LOGCAP IV, three contractors -- Houston-based KBR; DynCorp International of Falls Church, Va.; and Fluor Intercontinental Inc. of Irving, Texas, -- compete for individual task orders where the U.S. has a significant military presence. To date, 12 task orders have been issued, including four in Afghanistan, three in Kuwait and one for Haiti, which in January was devastated by an earthquake.
In March, the Army announced KBR had won the first task order for work in Iraq under LOGCAP IV. The $571 million contract included logistics support services such as warehousing, vehicle maintenance and air terminal operations, transportation, and postal operations for U.S. troops. The contract has four option years which, if exercised, could be worth nearly $2.8 billion.
The Army has said repeatedly it wanted to transition the remaining base camp support work in Iraq -- housing, meals, water, recreation and showers -- to LOGCAP IV. Under LOGCAP III, KBR provides base life support for U.S. troops throughout Iraq. The LOGCAP IV structure would have split the work between two contractors, one operating in the north and another in the south.
But after consulting military commanders in the theater and examining the projected cost of the transition, the Army decided this week the move would be too disruptive and costly. The decision was heavily influenced by Gen. Ray Odierno, the U.S. military commander in Iraq, Army officials said.
In addition to the withdrawal of U.S. military personnel from Iraq by the end of 2011, the drawdown will involve the closure or transfer to the Iraqi government of 139 bases. More than 95,000 contractor personnel also will withdraw from the country and nearly 3 million pieces of equipment must be removed, the Army said.
"Theater commanders expressed concern about transitioning the base life support services to LOGCAP IV during the time of massive drawdown operations in Iraq," Carlson said.
In March, the Army conducted a business case analysis on the costs and benefits of transitioning the base support work to LOGCAP IV and concluded that up to $77 million in costs would not be recouped, given the short window for withdrawal, Carlson said.
Competing bidders expressed disappointment and surprise with the Army's decision.
"We feel strongly that we submitted a competitive bid for the Iraq work with an achievable transition schedule which we believe will produce significant cost savings for the government," said Fluor spokesman Keith Stephens. "Our track record of performance doing LOGCAP IV work at 70 forward operating bases in Afghanistan has been very strong and we are proud of our work in theater."