KBR loses $25M in award fee bonuses for poor performance in Iraq (updated)
They didn’t just lose $25M….they got ZERO! This is a classic example of how one person can make a difference. I do believe KBR underestimated Cheryl Harris’ tenacity. I applaud you Cheryl!
Contractor linked to Iraq death loses $25M in fees
By KIMBERLY HEFLING
Associated Press Writer
Feb 24, 10:42 PM EST
WASHINGTON (AP) — Military contractor KBR has lost about $25 million in bonuses from the government because of “failed” worked done in Iraq during the time a Green Beret was electrocuted in a barracks shower it was responsible for maintaining.
The U.S. Army Sustainment Command said in a statement released to The Associated Press Wednesday night that the Houston-based company failed to meet a level deserving of an award fee payment for work it did during the first four months of 2008. Award fees are written into contracts as an incentive for the contractors to do quality work.
The Army statement did not specifically mention the January 2008 death of 24-year-old Staff Sgt. Ryan Maseth of Pittsburgh in the statement but said a task force that has extensively reviewed electrical work in Iraq was consulted in making the decision as was the U.S. Army Criminal Investigation Command, which investigated Maseth’s death, but did not press charges against KBR.
Dan Carlson, a spokesman for the Army Sustainment Command, said in an e-mail that “multiple factors” led to the decision.
Investigators said in August there was “insufficient evidence to prove or disprove” that anyone was criminally culpable in Maseth’s death.
The uproar over Maseth’s death triggered a review of 17 other electrocution deaths in Iraq and widespread inspections of electrical work in Iraq, much of which was performed by KBR. Maseth’s family has a pending lawsuit in federal court against KBR.
Heather Browne, a company spokeswoman, declined to comment.
The company disclosed the loss of the award fees in a filing to the Securities and Exchange Commission. It said it also expects to lose an additional $112 million in award fees from the government for the period of May to December 2008. It said it expects to lose the money based on information from a contracting official who said he “based his decision on information from sources that were different from our past experiences with award fee determinations.” (click HERE for original article)
Below is the Security Exchange Commission (SEC) filing submitted by KBR.
Form 8-K for KBR, INC.
ITEM 8.01. Other Events.
On February 19, 2010, KBR, Inc. was notified by the U.S. Army’s LogCAP Program Award Fee Government Determining Official that KBR will not receive any award fees for Task Orders 139 and 151 for the period January 1, 2008 through April 30, 2008. The Determining Official for the Award Fee Board has discretion in the matters considered in determining an award fee, and in the current notice the official indicated that he had based his decision on information from sources that were different from our past experiences with award fee determinations, which have been historically based on monthly performance evaluations prepared by our customers in the field of operations. KBR had accrued award fees for the period January 1, 2008 to April 30, 2008 of approximately $20 million. KBR has additional accrued award fees in the amount of approximately $112 million for the period May 1, 2008 to December 31, 2009. In light of the reasoning used by the Award Fee Government Determining Official in denying KBR any award fees for Task Orders 139 and 151for the period January 1, 2008 through April 30, 2008, we have determined that, as a result of the action by the Determining Official, we can no longer rely on the customer’s monthly evaluations of our performance as a basis to estimate and accrue award fees under U.S. Generally Accepted Accounting Principles as we have in the past. Consequently, as of December 31, 2009 we have written off the full amount of the remaining accrued award fees of $112 million through December 31, 2009. The aggregate of these two write offs will reduce our after tax net income by approximately $80 million, or $0.50 of earnings per share for 2009. In addition, we previously announced that we expected our fiscal year 2010 earnings per diluted share from continuing operations to be in the range of $1.60 to $1.80. With the reduction in the accruals for LogCAP III award fees, we expect the lower end of our guidance for our fiscal year 2010 earnings per diluted share from continuing operations to be reduced by up to $0.10, reflecting the effect of no recovery of award fees for the period May 1, 2008 through December 31, 2009.
Below is the email communication sent to KBR employees after the announcement of the ZERO award fee.
Sent: Friday, February 26, 2010 8:25 AM
To: DL_KBR LOGCAP III All Hands ME
Subject: 2008 Iraq Award Fee Announcement
TO: LOGCAP III Middle East Employees
FROM: Guy LaBoa, Principal Program Manager, LOGCAP III Middle East
SUBJECT: 2008 Iraq Award Fee Announcement
As most of you know, LOGCAP III is a Department of the Army cost-plus-award-fee contract – meaning KBR is reimbursed for the costs associated with servicing the contract, and can be awarded an “award fee” based on performance. The award fee is determined by an Award Fee Determining Official based on input from an Award Fee Evaluation Board (AFEB). The last AFEB for Iraq was held in June 2008 and covered the period January 2008 through April 2008. This week, the Award Fee Board Determining Official notified KBR that the award fee for this period was zero. The official said his determination was based on various government agency reports that were critical of KBR’s work during this period.
I want to ensure our employees that the award fee determination does nothing to diminish the great pride that KBR takes in the LOGCAP III project and its employees. Day in and day out, what you do for our soldiers, sailors, airmen and Marines is phenomenal. The enormity of services we provide the military is unrivaled in history, and you should be proud of what you are doing. Thank you for what you do each day.
Principal Program Manager
LOGCAP III ME/CA
FI – ID 43382
APO, AE 09344
Office: (281) 669-5600
I will agree with Mr. LaBoa that KBR has some great people on the ground who are doing as good a job a possible under difficult circumstances. They are just normal people trying to support our troops and their families. The problem is KBR management. Most of the “boots on the ground” working people are not familiar with the contract requirements, may not necessarily know if they are committing fraud or violating the contract in some way. But the managers who are instructing these people should and many do. It is the arrogance of KBR management who are responsible for this ZERO award fee.