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KBR November Litigation Round-Up

NEIL GORDON – (POGO) – November 26, 2012 – November has been a very bad month for defense contractor KBR.

KBR is the federal government’s primary logistics support contractor in Iraq, receiving tens of billions of dollars in business from the Department of Defense over the last decade, much of that under the U.S. Army’s monopolistic Logistics Civil Augmentation Program (LOGCAP) III contract.

In early November, an Oregon federal jury returned an $85.2 million verdict against KBR for exposing military personnel to toxic chemicals at an Iraqi water treatment facility in 2003. The jury found that KBR had “acted with reckless and outrageous indifference to a highly unreasonable risk of harm and conscious indifference to the health, safety, and welfare” of the plaintiffs. A case raising similar claims is pending in KBR’s hometown of Houston, Texas, and will soon go to trial.

KBR will probably appeal the Oregon verdict. The company is also seeking to enforce a provision in its contract that requires the government to indemnify KBR’s legal costs and damages. As POGO blog readers may remember, the U.S. Army Corps of Engineers (USACE) turned down KBR’s request for indemnification in the toxic exposure lawsuits. KBR filed a breach of contract lawsuit claiming that the USACE directed KBR to begin working at the site without first conducting a safety assessment and should therefore reimburse KBR for the $85.2 million damage award plus the more than $15 million it claims to have incurred in legal fees and expenses (including, we presume, its fees for a napping expert witness).Then last week, just days after the federal government voluntarily dismissed one False Claims Act lawsuit alleging fraud by KBR in Iraq (which the government has the option of re-filing), the government filed another Iraq contract fraud lawsuit against the company. According to the complaint, KBR and a subcontractor, construction firm First Kuwaiti General Trading & Contracting, overbilled the government more than $48 million for trailers used to house U.S. troops.

First Kuwaiti is a name that keeps popping up in the news. The company gained notoriety several years ago for its shoddy work and shady labor practices while building the U.S. Embassy in Baghdad. It was also at the center of a kickback scandal which resulted in the 2007 conviction of KBR employee Anthony J. Martin. The government alleges that KBR was aware of this kickback scheme at the time First Kuwaiti was performing the troop trailer subcontract. The government also accuses KBR of knowing as long ago as July 2004 that First Kuwaiti’s billing practices were, in the words of internal company emails, “absolute highway robbery.” Yet for six more years, according to the lawsuit, KBR continued to pass along First Kuwaiti’s invoices to the government for payment without verifying their accuracy.

Despite a seemingly endless parade of legal troubles for KBR—civil lawsuits, criminal investigations, administrative enforcement actions, investigative audits, and congressional hearings—the company remains a favored supplier of services to the federal government. Every once in a while, we at POGO stop and shake our heads in amazement at how this can be.  (Click HERE for original article)

Neil Gordon is an investigator with the Project On Government Oversight.

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  1. Comment by KBR and FIRST KUWAITI WATCH:

    Of course the USG knows about the kickbacks schemes and maybe are even part of its coverup. In 2008, Alghanim asked what percentage I wanted for a kickback for a USG bid and I told them to just give the USG their best deal. Unbelievable was that when information was being given to Camp Arifjan’s Army CID about ITTs overcharging of the USG – which they ultimately didn’t investigate any of the 15 witnesses, they were also told about this kickback scheme which did at one time involve KBRs Vehicle Maintenance Manager in the Green Zone at a kickback rate of $ 20 – 100 per vehicle per month and KBRs buyers were in on this one. When 2 new agents said they would set up a wire tap, the long-time and outgoing agent said that was a no-go.

    U.S. Army CID and the DOJ officers in the region are basically in the pockets of Kuwait DoD contractors. They ensure that none of the owners are prosecuted and also ensure the kickbacks continue unabated and with impunity. Basically – the corruption in Kuwait is systemic and is far-reaching. Why in the latest DoD IG report have we not read about any contracting officers going to jail in the last 3 years. Instead the corrupt are relocated. Low bid information is still being text messaged away – mainly because the Army didn’t learn anything from PFC Manning and they allow an unsecure work environment in building T-346 at Camp Arifjan and contracting officers are allowed to conduct US Government contracting on both a commercial website not in compliance with U.S. Governmnent regulations and communicate offline using Gmail and Yahoo.

    DoDs latest report on Camp Arifjan’s contingency contracting practices http://www.acq.osd.mil/dpap/ccap/cc/jcchb/Files/Topical/Ethics/DODIG-2012-134.pdf

  2. Comment by ARMY WATCH:

    You have to wonder how much in kickbacks was going to Lieutenant General Carl A. Strock – Chief of Engineers (July 1, 2004 – May 17, 2007) of the Army Corp of Engineers. First Kuwaiti gave him what ? KBR GAVE DCMAN CONTRACTING OFFICERS. This year the Army Corp of Engineer’s commanders ( Head of Agency ) single sole sourced while retired DWC a $ 25 Mil construction contract through Richard Elder. Just as unwarranted and just proof that the corruption within the Army Corp of Engineers is alive and well in Kuwait. This Qui Tam may recoup some of the overcharging, but where are the indictments of USACE contracting officers and General Officers ? The American public has been duped.

    Kuwait and the United States would do well to cut off all business dealings with any Lebanese. Why is it with United States Government Contracting officers funneling money into Lebanese hands with companies such as First Kuwaiti, Future Services, KRH and ITT who subcontract with Lebanese run companies.

    Does the U.S. Government have a break-away group within the Army and Army Corp of Engineers secretly funding Anti-Israel organizations harbored in Kuwait and Lebanon. Damn right there is a money laundry operation and it is American Contracting Officers from the Army Corp of Engineers, U.S. Army and U.S. Air Force funding them. Obama should take a look at how much U.S. Taxpayer money was funneled to Lebanon where casinos can funnel money anywhere they wish through casinos and countless other businesses that U.S. contracting dollars have funded through the corrupt contracting practices in Kuwait. It does help to have given so many parties and gratuities to the DOJ and Army CID that accountability will never come. Qui Tams are shelved and not investigated by Obama’s Administration with Eric Holder being bought off at nearly every Qui Tam that comes across his desk. President Lincoln would be very disappointed in the Qui Tam cover-ups President Obama. VERY DISAPPOINTED indeed.

    Baghdad Embassy Bonanza

    Kuwait Company’s Secret Contract & Low-Wage Labor
    by David Phinney, Special to CorpWatch
    February 12th, 2006

    cartoon by Khalil Bendib

    Work for what is planned to be the largest, most fortified US embassy in the world was quietly awarded last summer to a controversial Kuwait-based construction firm accused of exploiting employees and coercing low-paid laborers to work in war-torn Iraq against their will.

    More than a few U.S. contractors competing for the $592-million Baghdad project express bewilderment over why the U.S. State Department gave the work to First Kuwaiti General Trading & Contracting (FKTC). They claim that some competing contractors possessed far stronger experience in such work and that at least one award-winning company offered to perform all but the most classified work for $60 million to $70 million less than FKTC.

    “It’s stunning what First Kuwaiti has been able to get from the State Department,” one contractor said.

    Several other contractors that competed for the embassy contracts shared similar reactions and believe that a high-level decision at the State Department was made to favor a Kuwait-based firm in appreciation for Kuwait’s support of the invasion and occupation of Iraq.

    “It was political,” said one contractor.

    Mohammad I. H. Marafie, chairman and co-owner of FKTC, is a member of one of the most powerful mercantile families in Kuwait.

    Empire Building

    Undoubtedly, most of the 900 FKTC workers living and working on the construction site of the massive embassy project have been pulled from ranks of low-paid laborers flooding into Iraq from Asia’s poorest countries to work under U.S. military and reconstruction projects.

    Meanwhile, FKTC’s general manager and co-owner, Wadih al-Absi jets back and forth to the United States, dreaming of magazine covers celebrating his rise to a global player in large-scale engineering and construction.

    Raised in Beirut, he says he began his career much like the people he now employs – as a laborer installing drywall. The Lebanese Christian escaped war in his home country in the late 1970s and moved to Kuwait. The Persian Gulf country welcomes, even recruits, expatriate blue-collar workers like al-Absi to do the grunt work and domestic chores in its booming, oil-rich economy. Today glitzy shopping malls, flashy cars and sprawling villas have become the norm and migrants make up the nearly two-thirds of this tiny desert state’s 2.3 million population.

    Building his own personal fortune, al-Absi, too, relies on migrant labor. FKTC is one of the many Middle East companies that collectively ship tens of thousands of cheap day laborers to Iraq’s war zones where they are paid just dollars a day.

    Fortune Favors a Few

    American contractors witnessing the plight of some of these migrants at military camps around Iraq have openly complained that the Asians endure abysmal working conditions, live in cramped housing, eat poor food, and lack satisfactory medical care and safety gear.

    Typically, these migrants work 12 hours a day, often seven days a week, and earn as little as $500 a month performing tasks considered unsuitable for US war fighters. They work construction, drive trucks, run laundries, clean latrines, pick up rubbish and operate stores, dining facilities and warehouses. Without them, and the “body shop” subcontractors that provide such laborers, the US and coalition military camps — virtually small cities — would shut down.

    It is a lucrative business for many companies, one that has helped trigger explosive growth of FKTC.

    The company boasted of having $35 million in assets less than three years ago. Today, the firm has racked up hundreds of millions of dollars in U.S. contracts in Iraq, pushing the company well past the $1 billion mark. With 7,000 employees in Iraq, the company claims to be holding $800 million in construction and supply contracts directly with the Army for military camps, plus more than $300 million under Halliburton ‘s multibillion dollar contract to perform military logistics for the occupation forces in Iraq.

    It’s the kind of success that allows al-Absi to enjoy finely tailored suits with French cuff shirts, send his children to American universities and enjoy the fruits of being a newly-minted millionaire. “I love America,” he says freely.

    Meeting over a morning coffee last September at the posh Four Seasons Hotel in Washington, a legendary Georgetown retreat favored by pampered heads-of-state, Hollywood elite, the Rolling Stones and business executives, al-Absi’s eyes widened as he talked about his company’s greatest prize — the US embassy in Baghdad.

    The New Embassy

    Indeed, the massive $592-million project may be the most lasting monument to the U.S. occupation in the war-torn nation. Located on a on a 104-acre site on the Tigris river where U.S. and coalition authorities are headquartered, the high-tech palatial compound is envisioned as a totally self-sustaining cluster of 21 buildings reinforced to 2.5 times usual standards. Some walls as said to be 15 feet thick or more. Scheduled for completion by June 2007, the installation is touted as not only the largest, but the most secure diplomatic embassy in the world.

    The 1,000 or more U.S. government officials calling the new compound home will have access to a gym, swimming pool, barber and beauty shops, a food court and a commissary. In addition to the main embassy buildings, there will be a large-scale US Marine barracks, a school, locker rooms, a warehouse, a vehicle maintenance garage, and six apartment buildings with a total of 619 one-bedroom units. Water, electricity and sewage treatment plants will all be independent from Baghdad’s city utilities. The total site will be two-thirds the area of the National Mall in Washington, DC.

    Unlike most of Iraq’s reconstruction, the embassy is “on time and on budget,” according to a December report to U.S. Senate Foreign Affairs Committee which calls the progress an “impressive” feat given that construction is taking place in a country besieged by war.

    “Most major construction projects undertaken in Iraq since 2003 have not met these standards,” writes Patrick Garvey, a member of the Senate Foreign Relations staff who traveled to Baghdad in November 2005.

    With the embassy making a prestigious notch on the company’s belt, First Kuwaiti will step onto the world stage, al-Absi beamed. “I dream about what it means,” he said. “We have become a global company.”

    But putting pride aside, al-Absi asked to keep the embassy contract a secret until the first floors were built. The dangers of an attack are just too serious, he said last September. Even his personal residence had been bombed in the past. “I am all for transparency, but this is Iraq,” he explained.

    Despite the new embassy’s importance, and its rare on-schedule progress, the State Department has also resisted publicizing the contract. It was only after weeks of inquiries, that it confirmed that FKTC had been selected to construct the unclassified portions of the project. One day after the web site FedBizOpps posted a standard public notice for the first $370-million in FTKC contracts, it yanked the announcement. Department spokesman Justin Higgins cited security concerns.

    Trafficking Labor into War Zones?

    While safety is part of the reason for keeping a profile low, labor conditions for Iraq’s migrant workers are nothing to boast about.

    When first asked about mistreatment of FKTC’s labor force last August, al Absi threatened to sue if the allegations were published. At the time, CorpWatch was investigating the claims of Ramil Autencio and other Filipinos working for FKTC in Tikrit in late 2003 and early 2004. They claimed they were overworked, served poor food, and received less salary than what was agreed to in their contracts.

    Originally recruited for employment by MGM Worldwide Manpower in the Philippines, Autencio said he had planned to work at Crown Plaza Hotel in Kuwait for $450 a month. Then his recruitment contract was sold to FKTC when he reached Kuwait where he says he was pressured to work in Iraq against his will.

    “They forcibly brought me to Iraq when my contract provided that I would work in Kuwait,” he claimed in an October 3 CorpWatch story. In late 2003, he and other Filipinos found themselves cooped up in FKTC housing for a month without pay and minimal food as they awaited their transfer to Iraq, he said. “They threatened to put us in prison and they took everything we had, including our passports. The police would arrest us if we went out.”

    Once in Iraq, Autencio said that conditions became so bad that he and a group of 46 Filipinos decided to escape Iraq by hitching rides from Filipino truckers with the help of another Filipino serving in the US Army. Traveling by night, they reached Kuwait in three days time. Their numbers were so large that the Kuwaiti police could not stop them and they sought refuge in the Philippines Embassy, Autencio said. “The Kuwait police couldn’t do anything because we outnumbered them. We shoved them back when they asked for our papers. We were bolder because one of us had died by then.”

    Al-Absi, who speaks excellent English occasionally peppered with bluntness of a construction worker, denies the allegations of ill-treatment and labor trafficking.

    “It’s bullshit,” he said, after emailing electronic documents apparently signed by Autencio and others agreeing to work in Iraq. “Total bullshit.”

    Still, Autencio does not back down on his story. “All the contracts I had referred to Kuwait,” he said. “They pushed me into Iraq when they opened jobs there.”

    And Autencio is not alone in his complaints. An October 10 story in The Chicago Tribune reported on four-dozen other Nepalese workers waiting in Kuwait for jobs on American military bases in Iraq. In September 2004, after watching television reports that 12 Nepalese hostages in Iraq executed at the hands of insurgents, they changed their minds.

    Such stories of mistreatment recently prompted the U.S. State Department to join forces with the Defense Department into possible labor trafficking by Middle East firms doing business in Iraq.

    “Our people are investigating the issues,” said State Department spokesman Justin Higgins after U.S. Ambassador John Miller, head of the Office to Monitor and Combat Trafficking of Persons, left for the Middle East in late January.

    When CorpWatch inquired last July about widespread complaints about the poor working conditions and possible coercion of low-paid Asian laborers in Iraq working under Halliburton ‘s logistics contract, the Army said an investigation was underway. That inquiry began and ended with the Army raising the issues with Halliburton “for them to address with appropriate action within the terms of the contract,” said Army spokeswoman Melissa Bohan in an e-mail this month.

    Secretive Contract

    The contracts for building the largest, most-strongly fortified embassy in the world is a tale of fits and starts. From the Bush Administration’s initial request for more than a billion dollars in emergency funding for the project to the selection of an inexperienced Kuwaiti firm to build it — to even the small oversight effort is also a tale of secrecy.

    Although White House had signaled Congress in early 2004 that it was planning a permanent embassy in Baghdad, it wasn’t until spring 2005 that the Bush Administration formally pushed the funding request veiled as an emergency measure. The original proposal for $1.3 billion was almost three times the price of the new embassy in China.

    Reeling from overcharges and costs around other Iraq contracts, Congress immediately cut the price tag for the new Baghdad project in half to $592 million and called for strict oversight. Wired with the most up-to-date technology and surveillance equipment, it will still be a super-bunker and the biggest US embassy every built.

    Once funding was secured last spring, the U.S. State Department quietly put the project up for competition among seven competitors – including some of the most accomplished US engineering companies. Among the bidders, Framaco, Parsons, Fluor, and the Sandi Group have established track records for building secure embassies or large-scale construction projects.

    But the award went to FKTC, a company with little experience in projects on the scale envisioned for the embassy.

    “First Kuwaiti got the embassy job. [It] kinda surprised everyone that a foreign company would win,” said an executive of one prominent firm in an email to another, both of whom bid against FKTC.

    But publicly, the losing companies simply shrugged their shoulders and buttoned their lips. It takes guts for a contractor to publicly gripe about the decisions of government contract officers. Many fear they may not get future business if they do.

    There may also be little reason for some of the losing competitors to complain. Some, including Framaco and The Sandi Group of Washington, DC, soon received other State Department contracts. The open-ended contracts call on the companies to work anywhere in Iraq when needed, including on the new embassy project.

    The Sandi Group was given notice to prepare for some site clearing and for building temporary housing for the embassy workers, said Sandi’s vice president for development, Muge Karsli. Then the order was abruptly suspended in January. “I was supposed to hear more from them in a week, but I didn’t,” she said matter-of-factly. “Now, it is on hold.”

    Bill Waldron is one contractor who will talk about the embassy project. He claims his Rocky Mountain Group lost more than $250,000 while preparing a bid to perform engineering oversight for FKTC and project inspection. Waldron said that his 25-year-old, veteran-owned Colorado company had already been given the word that his company would be the leading contender for the deal, which is why the firm spent so much effort on the proposal, including compiling a two inch thick file on the company’s personnel experience in Iraq – experience that State Department contract officers said they were looking for.

    Then the State Department put the job up for open bid three different times, each time with a new revision. The last solicitation was cancelled after the contracting officer went of vacation, according to Waldron.

    Waldron’s patience finally burst. Only after doggedly hounding the State Department for reasons why the competition had been cancelled did he find out what happened.

    The contract was awarded without competition on an emergency basis to a Maryland company, Mil Vets, Waldron said. “We contacted Mil Vets and asked if they had any experience working in Iraq prior to being awarded the embassy project,” Waldron said. “The answer was no.”

    Al-Absi, for his part, views his embassy agreement as based on merit and it is the success of his company that draws fire from his critics.

    FKTC never, ever got any job without offering the best value at the lowest price,” he said. “People will never criticize someone who fails.”

    That, says al-Absi, is a price he is willing to pay.

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