US Army, in switch, says sticking with KBR in Iraq

Thu May 6, 2010 7:02pm EDT

*Will pay up to $568 million for food, other support

*KBR to remain sole-souce supplier pending US withdrawal

*Army says acted on commanders' advice

By Jim Wolf

WASHINGTON, May 6 (Reuters) - The U.S. Army, in a reversal, said it will stick with KBR Inc (KBR.N) to supply up to another $568 million of food, laundry and other essential support to U.S. troops in Iraq until their scheduled withdrawal at the end of next year.

The move denied DynCorp International Inc DCP.N and Fluor Corp (FLR.N) a shot at what was to have been a competitive stage of a previously sole-source contract.

"This decision is based primarily on the assessment of commanders that such a transition during the drawdown could have significant adverse operational impacts," the Army Sustainment Command said in a statement dated Wednesday.

The Army, prodded by Congress, requested competitive proposals in January for a planned fourth phase in Iraq of its Logistics Civil Augmentation Program, or LOGCAP.

The solicitation was canceled on Wednesday.

"We concluded that continuing LOGCAP III support provided the best solution for our men and women in uniform as well as the U.S. taxpayers," said Linda Theis, a sustainment command spokeswoman. "Operational requirements, cost, and contractor performance were key to our decision."

The contract's current task order expires Aug. 31. The Army said it would exercise an option for KBR to continue its "base life support" deal from Sept. 1 through Dec. 31, 2011, the projected completion of U.S. troop withdrawal from Iraq.

The contracted services include engineering and sustainment, equipment maintenance, facility operations, dining, cleaning, laundry, water production, sewage and trash pickup.

Fluor had submitted a competitive bid for the Iraq work "with an achievable transition schedule" designed to produce significant savings for taxpayers, said Keith Stephens, a company spokesman.

DynCorp had no comment on the Army's decision, said Jason Rossbach, a company spokesman.

KBR remains "proud of our work and we are humbled to support our troops," said Mark Williams, President, KBR Infrastructure, Government and Power.

The U.S. Justice Department said on April 10 it had brought a civil fraud suit against KBR, alleging KBR charged the government for unauthorized security services in Iraq. In 2007 and 2008, the Defense Department disapproved $103.4 million paid to KBR under LOGCAP III for unauthorized security services.

Separately, the Justice Department said on Wednesday it had joined a lawsuit against KBR that alleges employees of two freight forwarders provided unlawful kickbacks to KBR transportation department employees.

The Democratic and Republican heads of a U.S. Senate Homeland Security and Governmental Affairs subcommittee wrote to Defense Secretary Robert Gates last week in an attempt to head off the decision to stick with a sole-source deal.

"Given the significant progress made in the last year toward increased competition, oversight and accountability through the successful transition of both Kuwait and Afghanistan to LOGCAP IV, we are dismayed by the prospect of the (Defense) Department foregoing these potential gains," Senator Claire McCaskill, head of the subcommittee on contracting oversight, and Sen. Scott Brown, the panel's top Republican, wrote in an April 30 letter.

The Army, in its statement, said any transition to a new contractor in Iraq would have taken until February 2011 even assuming a prompt contract award that went unchallenged by the loser or losers.

The handover would have cost taxpayers $77 million that would not have been recouped, Theis said in an emailed reply to Reuters.

She said KBR stands to gain up to $568 million in extra work under LOGCAP III -- work that might have gone to DynCorp or Fluor.

The U.S. exit from Iraq involves closing or transferring 139 active bases or facilities; management of 95,400 contractors currently in the country, including 49,400 involved in the LOGCAP program, and an inventory of 2.9 million separate items, the sustainment command said.

DynCorp and Fluor were picked over KBR last July for five-year contracts worth up to $7.5 billion each to support U.S. troops in Afghanistan under a separate LOGCAP IV deal.

The decision to stick with KBR in Iraq does not change the Army's determination to solicit competition under LOGCAP IV and other contracts elsewhere in the U.S. Central Command's area of operations, the sustainment command said.

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