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My Conversations with Charles Smith: the man who took on KBR

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Charles Smith, former chief of the Field Support Contracting Division of the Army Field Support Command, was in charge of overseeing the KBR's contract work in Iraq . He went public Tuesday on the front page of the New York Times, saying that he tried to withhold payments to KBR based on their overcharging and lack of information. He was replaced and KBR's over inflated bills were paid.

I found Mr. Smith a few months ago, about a year after my book, Betraying Our Troops: The Destructive Results of Privatizing War was published. My co-author and I had documented much of the fraud that Mr. Smith was talking about but did not know that this career Army bureaucrat was waging his own internal war for accountability against a war service industry contractor with high political connections. When we researched our book, we were surprised how afraid most people were inside the bureaucracy were to talk. I have been talking in confidence to people inside the Pentagon since 1979 and I had never seen such a level of frustration with the fraud but also great fear in speaking to anyone, even anonymously. We interviewed many ex KBR employees and soldiers to piece together what went so terribly wrong with the contractors in Iraq and why our government refused to hold the contractors to even the minimum of oversight. We also interview two generals, General Paul Kern and General Hank McManus, both were responsible for the logisitics leading up to the war.

I asked Charles Smith to read our book and let us know where we got it wrong. He found a few errors but confirmed several important points that we illustrated in the book:

-- He was pleased with our chapter on General Kern and Major General McManus. (In case you want to find it in the book, it is entitled "You Go to War with the Secretary of Defense You Have.") He said that they are two of the finest officers he had ever met. He also said that their integrity is without question as is their devotion to supporting our troops

-- He said that after he tried to withhold money from KBR based on the DCAA (Defense Contract Audit Agency) reports, he was pushed out. His replacement paid the bills and the result appeared to be settlements of major contractual issues (withholding of 15% of invoices prior to definitization, definitization process and amounts, contract types and Award Fee Determinations) in ways that were extremely favorable to KBR. It was especially disturbing to him because General Casey had become the Commander in Iraq with a set budget to conduct operations. He then said that every dollar which KBR received improperly, was a dollar less that the troops did not have for body armor or improved armor for their vehicles.

That last statement confirmed what we were talking about in the book. As the contractor bills surged out of control, the Army had to make choices with the supplemental money they were receiving for the war. The Congress heard about these shortages of body armor, up armored Humvees, and even simple items such as boots and threw money at the problem. But as long as the contractor over billing continued unabated, those shortages continued to the detriment of our troops. We had received some heat with the title of our book called Betraying Our Troops, but Mr. Smith helped to confirm from the inside what we found out on the outside - these contractors were taking vital resources and equipment away from the troops.

In the New York Times article, the Army freely admitted to paying the bills because they feared that KBR would hold up supplies and services to the troops:

Army officials denied that Mr. Smith had been removed because of the dispute, but confirmed that they had reversed his decision, arguing that blocking the payments to KBR would have eroded basic services to troops. They said that KBR had warned that if it was not paid, it would reduce payments to subcontractors, which in turn would cut back on services.

"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."

I wrote about this last March on the Huffington Post blog that we found in the course of writing our book, that KBR was threatening work stoppages if they weren't paid. It still amazes me that the all powerful DOD, including the general officer corps, would be help hostage by any contractor.

Here is part of what I wrote in my 3/11/08 blog:

Some people suggest that we pull all contractors out of Iraq. This is not realistic or necessary. The Army has outsourced way too much of its vital logistics to contractors and they need to rein it in and get control of the contractors. The contractors need to be out of the battlefield and only used to supplement the Army's war effort. The Army has literally been held hostage to these contractors for the length of this war. Don't believe me? Read this opening vignette at the beginning my book . I was able to verify this practice was happening on bases all over Iraq:

Camp Spiecher, Iraq, late summer 2004.
The air in the room hung with tension. Even the air conditioning in the heat-baked environment did not stop the sweat from forming on the foreheads of the Army staff. The brigadier general in charge of the meeting shifted uncomfortably in his chair. The Army's logistics' contract manager at the camp could not believe what he was hearing. A KBR manager responsible for supplying the troops in this camp with food, water, and all other services and supplies, had just threatened to stop KBR's work at Camp Speicher - to stop cooking and feeding the troops, to stop supplying the troops outside the base - unless the Army paid KBR's submitted invoices.
Granted, his company, KBR, a subsidiary of Halliburton [KBR is now an independent company], was operating "at risk" by overrunning it's budgeted spending and had been late in sending its invoices to the Army. And the Army was slow in paying because of its concerns over the accuracy of the company's invoices. Even so, the KBR manager had just threatened the Army brass that his employees were going to stay in their housing containers and do nothing until the money was paid. Essentially this would amount to a work stoppage, or labor strike, on the battlefield - perhaps the Army's biggest fear regarding the Pentagon's new experiment of having private contractors supply the basic needs of its troops on the battlefield...
...The Army logistics contract manager and the camp's general officer faced the disaster of having to explain to their men, their superior officers, that there might not be any food, water, or other vital supplies the next day because the Army didn't have a backup plan. Since the Army had outsourced these traditionally Army-provided services to one company, they did not have any choice. The Army was short of troops, so there were no backup soldiers to take on these tasks.
KBR ended up working the next day because the Army ultimately relented and agreed to come up with the money to pay its invoices. But this was not the first or last time the company would threaten the Army with work stoppages. It was like negotiating with the only plumber within a thousand miles while your basement was filing with water. KBR was in the driver's seat and the company knew it.

Now the current Congress and a new Administration has a chance to hear from people like Charles Smith and call to task the culprits in the government who allowed this. We need to go after the money that has been over billing and reform the system so that we never use contractors in this way again and jeopardize our troops. The question is whether we will have the collective and institutional strength to right this wrong and make sure that it doesn't happen again. Charles Smith has taken a stand. He now will need help from the Congress and the next president to make sure that his stand was not taken in vain.