How Halliburton ensured it had a very profitable war in Iraq

Fri, Feb 13, 2009, 00:00

BOOK OF THE DAY : Halliburton’s ArmyBy Pratap ChatterjeePerseus Books 284pp, US$26.95

IT MAKES sense at first sight. The logistics involved in fighting a war, especially one far from home, can be horrendous. And the complexity of supplying hundreds of thousands of troops with equipment, medical care and food – just for starters – is not a skill set for which armed forces would be renowned.

There is also the cost, which can escalate exponentially, especially if financial control and top-end management skills are in short supply. Much simpler to outsource. Bring in an outside company that knows the business; it will save money and be more efficient. The army would maintain a vigorous overview.

That is the theory that brought Halliburton in to do the logistics for American troops in the Balkans, Afghanistan and most notoriously in Iraq. But, as the author points out, the Halliburton operation has been far from efficient and certainly didn’t save any money.

There has been a steady stream of Halliburton stories coming out of Iraq. Time and again the company was awarded contracts for which there was no other competitive bid allowed. The company spent $75 million digging a pipeline under the Tigris river at a location where the army later decided nobody should have tried. This was part of the $7 billion (no bid) contract to restore Iraq oil exports, which has been a disaster. Then there are the disposable canteen plates that cost the American taxpayer $28 each.

Needless to say, it’s been a profitable war for Halliburton. This is because the contracts are cost plus, meaning the full cost is paid to the company plus a percentage profit on top. This is the opposite of financial control. The more Halliburton charges for cost, the larger its profit. The Pentagon maintains that only flexible contracts such as these would work in Iraq.

There does have to be flexibility. Iraq is no walk in the park; to get people to work there at all, never mind for an army of occupation, is going to be expensive. Drivers can pocket more than $100,000 a year; security specialists can make twice that. On the other hand, the company can be downright stingy if the employees are third-world workers, offering them dangerous work, poor pay and no labour protection. The soldiers are well provided for (nine flavours of ice cream) but even they are annoyed at the disparities. Why should a soldier patrol a danger zone for 12 hours a day for a salary of some $50,000 per year when a Halliburton employee does the same for three times as much? Because the Halliburton employee has a choice on whether to work in Iraq; the soldier does not.

The company was formed 90 years ago by Erle and Vida Halliburton to provide assistance to companies drilling for oil in Texas. By 1982 it employed 115,000. However, the energy sector went into a decline and it turned its attention to the defence forces. When Dick Cheney was defence secretary for the first president Bush, he gave large contracts to a Halliburton subsidiary. When Bush lost office, Cheney was offered the job as chief executive of Halliburton, retiring from there during the 2000 presidential election with a severance package of $36 million. He drew down further money from it while vice-president, when Halliburton was getting even more lucrative army contracts. Cheney has always insisted he had no hand in the awarding of contracts to Halliburton. Well, there was no need to – his friend and political soulmate is Donald Rumsfeld, then defence secretary.

The book is devoid of illustration and has the look of a textbook. It does, though, have copious notes and is broken up into digestible chapters. It is somewhat partisan and a little sensationalist, but very informative.

Eoin McVey is a managing editor of The Irish Times