» KBR should refund payments says DCAA Ms Sparky

KBR should refund payments says DCAA

June 16, 2009 — Ms Sparky

KBR Should Refund U.S. Payments for War Insurance, Auditors Say

By Tony Capaccio

June 16, 2009 (Bloomberg) — KBR Inc., the largest U.S. contractor in Iraq, should be pressed to return part of $27.6 million the Pentagon paid for the company’s war insurance premiums in 2003, according to Pentagon auditors.

The Defense Contract Audit Agency recommended contracting officials begin withholding payments on future contracts if KBR doesn’t provide paperwork documenting that the insurance premium billings in 2003 were reasonable.

The repayment is necessary because “a significant amount of time has passed” since the agency asked KBR, formerly a unit of Houston-based Halliburton Co., to provide documentation, auditor Lydia Jackson wrote June 12 to the Pentagon’s Defense Contract Management Agency.

“KBR did not provide adequate documentation demonstrating costs were reasonable, such as solicitation for bids and/or its market research on insurance premiums,” she wrote. The agency is now reviewing 2004 premium claims, she wrote.

Heather Browne, spokeswoman for Houston-based KBR, said the company “is not aware” of the audit agency’s “specific recommendations and we have not received a notification.”

The agency “has reviewed the costs of the federally mandated insurance on numerous occasions over the past several years,” she said in an e-mail. “KBR works diligently to provide information in a timely manner when it is requested.”

Required by Law

Kellogg Brown & Root was split off from Halliburton in 2007 and is now known as KBR Inc. Like all defense contractors, KBR is required to take out death and injury insurance for all U.S. employees and subcontractors doing business overseas. The insurance is required by the 1941 Defense Base Act.

The government reimburses companies for the premiums. In many cases, if the injury or death is war-related, insurers also will be reimbursed as well for the full cost of benefits, plus 15 percent in administrative fees.

The premiums at issue are among $592 million KBR incurred from 2003 to 2007 as it fulfilled its $31 billion contract to provide housing, food, laundry, mail delivery and fuel to U.S. Army troops worldwide, according to the audit agency.

KBR has provided no solid documentation that it tried to get the lowest rates in 2003, audit agency director April Stephenson told a congressionally mandated commission last month. Nor does KBR verify that the payroll information from subcontractors that is used to calculate the premiums isn’t inflated, Stephenson said.

Oversight at Issue

The Pentagon and the Labor Department are both responsible for overseeing the war insurance program.

Senator Bernie Sanders, an independent from Vermont, said he would challenge the effectiveness of this oversight at a hearing on the war insurance program June 18 by a panel of the House Oversight and Government Reform Committee.

“It’s about time the Pentagon hold KBR and other defense contractors accountable,” Sanders said in an e-mailed statement. “Clearly contractors made big money, less clear is what the Defense Department and taxpayers got for their money.”

The insurance for about 80 percent of the war coverage is issued by New York City-based American International Group Inc.

A September 2007 Army audit concluded that premiums AIG charged to KBR showed “wide swings” that appeared “excessive” before dropping in 2006. It stopped short of saying that KBR should be required to repay the U.S., however.

The war insurance questions are the latest for a contractor that received continued criticism of its logistics contract management and the adequacy of the internal business systems used to ensure that costs submitted for government reimbursement are reasonable. (click HERE for the original article)