03/11/2008 10:32 am ET Updated May 25, 2011

Hemorraging $12 Billion a Month: Triage on How to Slow the Bleeding

According to new estimates, we will soon be spending up to $12 billion a month on the wars in Iraq and Afghanistan and if current trends continue, this war effort will surpass the money spent in Vietnam. When I started looking at where the war money was going five years ago, we were spending less than 4 billion dollars a month with pretty much the same amount of troops deployed. (There are now about 160,000 troops in Iraq and about 160,000 contractor employees, the most in history.) I will let the politicians sort out when we should get out of Iraq but I can tell you what the Congress can do to slow the bleeding until more help comes.

The war service industry, otherwise known as the contractors in these wars, have had an out-of-control money meter running since the build-up of the war. I have sources inside the DOD who have told me that there was no serious, on-the-ground auditing by the DOD in Iraq until the fall of 2006, which happens to be when the Democrats won the Congress back and various chairmen such as Henry Waxman promised to hold oversight hearings. My sources also tell me that the limited auditing that has been done has shown examples of large amounts of questioned costs that the Army just keeps paying anyway. Why does the Army keep paying? One reason might be what you will read at the bottom of this post.

While others may say that this is not important in the middle of the war, I will tell you that the contractors, by running up their historical costs on the first round of task orders, have guaranteed that the future work in this war will be inflated with all this fraud, abuse and waste. The Center for Public Integrity has found that "U.S. government contracts for work in Iraq and Afghanistan have grown more than 50 percent annually, from $11 billion in 2004 to almost $17 billion in 2005 and more than $25 billion in 2006."

This trend will continue until the Congress forces the DOD to get serious about scrubbing the costs billed by the contractors. This war has been a perfect storm for overbilling: In the rush to war, the generals used contractors in vastly larger numbers than ever before, put them in battlefield situations where it is very hard to audit them, gave them indefinite quantity/indefinite delivery contracts, and ignored most of the puny auditing that has been done and paid most of their inflated bills. KBR, by far the largest contractor in Iraq, recent reported profits of $71 million. But they also said that they had to deduct $22 million in potential disallowed costs in Iraq in 2003. Considering that the KBR contract in Iraq has exploded to approximately $26 billion with them billing the government over half a billion dollars a month, this potentially small recover is peanuts.

Meanwhile, the contractors are estimating that their new task orders based on these old, unscrubbed costs and adding on more for inflation and other "unseen" problems. That is called contract nourishment in the trade and will make it so that the contractors will exponentially spiral up their costs and the $12 billion a month will go to $15 billion a month and upward. And, if we end up needing contractors anywhere else in the world for whatever reason, these inflated costs will be become the new baseline for future contracts.

So what should we do? There is some heavy lifting ahead for the Congress. They need to put in all future DOD appropriations, including the war supplemental bills, requirements that the DOD go back and scrub all the bills from Iraq to the present, force the contract managers to accept the auditors' disallowed costs, recover the money, adjust the new task orders and contracts to reflect the real costs for their services, and push the Department of Justice to prosecute the dozens of Iraq war whistleblower suits that are laying fallow in that building. The new Wartime Contract Commission, started by freshman Democratic Senators Webb and McCaskill, can also do some of the long time heavy lifting to make sure that the DOD institutes all the necessary changes to get control of the money.

We also need to pull the contractors out of war zones into safe bases, Kuwait and the Green Zone, so that their costs can be watched and we don't put our soldiers at risk with contractors that do less than a full job and contractor employees quit and leave the troops without the necessary supplies. (Want to know more about that? I wrote a whole book about it....Betraying Our Troops: The Destructive Results of Privatizing War.) Congress should also force KBR to not have their employees paid by offshore companies to avoid paying Social Security and Medicare.

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.