Army Overseer Tells of Ouster Over KBR StirWASHINGTON — The Army official who managed the Pentagon’s largest contract in Iraq says he was ousted from his job when he refused to approve paying more than $1 billion in questionable charges to KBR, the Houston-based company that has provided food, housing and other services to American troops.
The official, Charles M. Smith, was the senior civilian overseeing the multibillion-dollar contract with KBR during the first two years of the war. Speaking out for the first time, Mr. Smith said that he was forced from his job in 2004 after informing KBR officials that the Army would impose escalating financial penalties if they failed to improve their chaotic Iraqi operations.
Army auditors had determined that KBR lacked credible data or records for more than $1 billion in spending, so Mr. Smith refused to sign off on the payments to the company. “They had a gigantic amount of costs they couldn’t justify,” he said in an interview. “Ultimately, the money that was going to KBR was money being taken away from the troops, and I wasn’t going to do that.”
But he was suddenly replaced, he said, and his successors — after taking the unusual step of hiring an outside contractor to consider KBR’s claims — approved most of the payments he had tried to block.
“You have to understand the circumstances at the time,” said Jeffrey P. Parsons, executive director of the Army Contracting Command. “We could not let operational support suffer because of some other things.”
Ever since KBR emerged as the dominant contractor in Iraq, critics have questioned whether the company has benefited from its political connections to the Bush administration. Until last year, KBR was known as Kellogg, Brown and Root and was a subsidiary of Halliburton, the Texas oil services giant, where Vice President Dick Cheney previously served as chief executive.
When told of Mr. Smith’s account, Representative Henry A. Waxman, the California Democrat who is chairman of the House Oversight and Government Reform Committee, said it “is startling, and it confirms the committee’s worst fears. KBR has repeatedly gouged the taxpayer, and the Bush administration has looked the other way every time.”
Mr. Smith, a civilian employee of the Army for 31 years, spent his entire career at the Rock Island Arsenal, the Army’s headquarters for much of its contracting work, near Davenport, Iowa. He said he had waited to speak out until after he retired in February.
As chief of the Field Support Contracting Division of the Army Field Support Command, he was in charge of the KBR contract from the start. Mr. Smith soon came to believe that KBR’s business operations in Iraq were a mess. By the end of 2003, the Defense Contract Audit Agency told him that about $1 billion in cost estimates were not credible and should not be used as the basis for Army payments to the contractor.
Eventually, Mr. Smith began warning KBR that he would withhold payments and performance bonuses until the company provided the Army with adequate data to justify the expenses. The bonuses — worth up to 2 percent of the value of the work — had to be approved by special boards of Army officials, and Mr. Smith made it clear that he would not set up the boards without the information.
Mr. Smith also told KBR that, until the information was received, he would withhold 15 percent of all payments on its future work in Iraq.
“KBR really did not like that, and they told me they were going to fight it,” Mr. Smith recalled.
The next morning, Mr. Smith said he got a call from Brig. Gen. Jerome Johnson, who succeeded General McManus when he retired the month before. “He told me, “You’ve got to pull back that letter,”’ Mr. Smith recalled. General Johnson declined to comment for this article.
A day later, Mr. Smith discovered that he had been replaced when he went to a meeting with KBR officials and found a colleague there in his place. Mr. Smith was moved into a job planning for future contracts with Iraq. Ms. Watkins, who also declined to comment, was reassigned as well.
Soon after Mr. Smith was replaced, the Army hired a contractor, RCI Holding Corporation, to review KBR’s costs. “They came up with estimates, using very weak data from KBR,” Mr. Smith said. “They ignored D.C.A.A.’s auditors,” he said, referring to the Defense Contract Audit Agency.
Bob Bauman, a former Pentagon fraud investigator and contracting expert, said that was unusual. “I have never seen a contractor given that position, of estimating costs and scrubbing D.C.A.A.’s numbers,” he said. “I believe they are treading on dangerous ground.”
The Army also convened boards that awarded KBR high performance bonuses, according to Mr. Smith.
High grades on its work in Iraq also allowed KBR to win more work from the Pentagon, and this spring, KBR was awarded a share in the new 10-year contract. The Army also announced that Serco, RCI’s parent, will help oversee the Army’s new contract with KBR.
“In the end,” Mr. Smith said, “KBR got what it wanted.”
