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Halliburton loses exclusive military deal

Scott Tong Jul 12, 2006

This story incorrectly reported that a contract the military had made with Halliburton to provide logistical support to soldiers in Iraq had been a no-bid deal. In fact, the contract had been awarded through the competitive bidding process.

KAI RYSSDAL: Microsoft shares took a bit of a tumble today. Off about two percent. Shares of Halliburton fell as well. But not as far as you might imagine. Given that the company’s about to lose its lock on Iraq contracts. The Army announced today it’s not renewing Halliburton’s no-bid deals. And plenty of competitors want in on the action. It’s dangerous over there, sure. But profitable, too. Here’s Marketplace’s Scott Tong.

SCOTT TONG: Giant defense companies are expected to compete for the contract next month. These are the makers of missiles and tanks, the sexy part of warfare. So why are they hot for the Halliburton services gig — serving meals and washing clothes in a danger zone?

Analyst Winslow Wheeler of the Center for Defense Information says that’s the industry future:

WINSLOW WHEELER: The thinking amongst the big contractors like Lockheed and Boeing and Northrup Grumman is there’s not a great big future in hardware contracting with DoD.

At least not compared to services. The military now outsources everything from training to finance to engineering. In this case, Wheeler suspects defense companies lobbied the Army for a piece of the Halliburton pie. It’s now worth some $5 billion a year. But a change in contractors may not necessarily end the abuses that auditors have found. They say Halliburton overbilled for all kinds of things.

CHARLIE CRAY: Like monogrammed towels or charging $45 for a case of soda.

Charlie Cray runs a watchdog group, the Center for Corporate Policy. A big problem, he says, is the nature of the contract. It’s called cost-plus — the more the contractor spends, the more it profits.

CRAY: Instead of protecting the interests of taxpayers, the cost-plus contracts create an incentive for the contractor to pad the bill.

Rumor is the Army will divvy up the new contract among three companies. A fourth company would audit the contract. That means the military would not just be outsourcing its services, but its oversight as well.

In Washington, I’m Scott Tong for Marketplace.

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