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Sunday, August 14, 2011

Essay on Halliburton Energy Services and Iraqi Contracts

Halliburton Energy Services is a multinational corporation that operates in more than 120 countries. Founded in 1919, it is now one of the world’s largest providers of products and services to the energy industry.  It has over 50,000 employees in 70 different countries.  Currently, it offers the world’s broadest array of products, services and integrated solutions for oil and gas extraction, development and production. 

Halliburton is not only engaged in oil and gas exploration.  It is also a private contractor which has been awarded various military contracts by the government.  One of Halliburton’s most lucrative contracts is with the U.S. Army.  The contract is known as the Logistics Civil Augmentation Program or LOGCAP.  It is a “cost plus” contract performed through Halliburton’s subsidiary which is Kellogg Brown and Root (KBR).  Under the contract, the KBR was required to feed, house and transport troops around Iraq and the Middle East. 

Another contract that was entered into between the U.S. government and Halliburton was the Restore Iraqi Oil (RIO) contract.  It was a two-year cost plus contract amounting to $7 billion.  As a backgrounder, prior to the war in Iraq, the United States Army feared that Saddam Hussein may explode its oil wells.  In order to prepare for such eventuality, the Army awarded Halliburton a no-bid contract for the purpose of extinguishing the fire in Iraqi oil wells and rebuilding its oil infrastructure. 

On its face, there appears to be nothing wrong with the contracts.  The RIO contract sought to prevent or to control the damage that Saddam Hussein may cause to Iraq’s economy.  The contract seems to be logical and reasonable considering that destruction of Iraq’s oil wells will cause severe damage not only to Iraq but even to other countries that are dependent upon Iraq for oil supply.  Destruction of oil wells may affect the price and supply of oil all over the world since Iraq is one of the producers of oil. 

However, government contracts are different from private contracts.  In a private contract, the contracting parties may enter into any kind of stipulations and agreements provided they are not contrary to existing laws.  In private contracts a buyer can freely buy from any seller without the need to explain to the public why he chose to buy from the seller.  The same is true for the seller who does not need to explain to the public why he chose to sell his products to the buyer. 

The situation is different, however, in a government contract.  Since government contracts involve the expenditure of public funds it is essential that the procuring entity or the government agency which is purchasing goods and services should observe certain rules and procedures.  One of these procedures is the process known as the competitive bidding (“Government Contracts”, 2010, p.1).  When a government agency announces a project to be completed it requires a number of different companies to submit competing bids or proposals.  The objective of the submission of bids or proposals is to give the government opportunity to evaluate the proposals of the participating companies in terms of cost, technical expertise, and reputation of the participating companies.  Under the competitive bidding scheme, the company which has the lowest-cost bid and the most expertise on the project usually wins the contract.  Verily, the competitive bidding process seeks to ensure that the public funds are spent wisely and properly.
In awarding the RIO no-bid contract to Halliburton, the government awarded the contract to one Halliburton without first determining whether other companies can undertake the same kind of work for a lower cost.  When the government dispensed with competitive bidding the government was denied of the opportunity to determine whether there are other companies that can perform the task at a lower cost. 

Charles Dominy, a Halliburton Vice President, said that the reason for dispensing with the competitive bidding requirement is that there are no other companies capable of performing the project.  He said that “We are the only company in the United States that had the kind of systems in place, people in place, contacts in place, to do that kind of thing”(“Halliburton Defends No-bid Iraq Contract”, p.1).

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However, there is evidence that will establish that Halliburton is not the only company in the United States capable of fulfilling the requirements of the project.  In fact, KBR’s competitors argued that it was not the only company capable of handing the workload on such short notice.  GSM Consulting of Amarillo, Texas, for instance, had experienced fighting oil well fires.  Its president, Bob Grace, worked for the Kuwait government after the first Gulf War to developing a firefighting strategy for Kuwait’s oil field.  In fact, it appeared that GSM Consulting was intentionally denied the opportunity to be able to present its credentials to the superior officers.  This is established in a letter from the Department of Defense which said that “The department is aware of a broad range of well firefighting capabilities and techniques available. However, we believe it is too early to speculate what might happen in the event that war breaks out in the region" (“Iraqi Oil Infrastructure Contract”, p.1)

In addition, there is evidence that can establish that Halliburton engaged in unethical business practices that resulted in the award of the no-bid business contracts in its favor.  According to, the company spent $4.6 million since 2000 for the purpose of influencing the politicians in Washington through campaign donations and lobbying.  The members of the board of directors and their families even gave $828,701 to candidates for Congress and the presidency while the company’s political action committee gave $1.2 million to Republicans and political organizations connection to Republican politicians.  It also spent an additional $2.6 million for its lobbying.  These efforts and bribery on key politicians have more than compensated Halliburton as its government contracts increased by more than 600% by the end of 2005. 

It is very surprising that in today’s society bribery of politicians is no longer considered illegal or even immoral.  For certain businesses, bribery is simply considered as the cost of doing business.  It is viewed as something that company needs to do in order to succeed in business.  It is also an accepted business practice in which companies think that they have to resort to bribery otherwise other companies will. 

It must however be stressed that bribery is not only unethical but it is also illegal.  It exposes the public official who is the recipient of money to criminal liabilities.  At the same time, the individuals responsible for delivering the money to criminal liability.

II. Ethical Issue for Dick Cheney
On the part of the government, the government justified the awarding of no-bid contract due to national emergency and national security concerns.  It said that in these situations the government is allowed to bypass normal procedures and award contracts to a single company without going through the regular process.  For the government the pending war with Iraq justified the non-compliance of the same rules that it should uphold. 

Firstly, it must however be stressed that the war with Iraq did not just happen.  It was not an event that was planned overnight.  In fact, the former President George Bush even spent months convincing the world about the need to invade Iraq and that it is hiding weapons of mass destruction within its territory.  He spent months trying to convince the world to support the United States in its plan to invade Iraq.  It is very amusing that the president did not take into account the planning of the RIO contract in its plans. 
Secondly, there are issues of conflict of interest surrounding the award of no-bid contract in favor of the Halliburton. It appears that Dick Cheney, the former Vice President and the former CEO of Halliburton may have influenced the grant of no-bid contract to favor Halliburton.

According to research, in 1995, Dick Cheney left the Department of Defense to become the CEO of Halliburton.  He became the chairman of the board from 1996 to 1998 and from February to August 2000.  As a former secretary who had ties with the government, he was able to steer Halliburton and improve its standing from 73rd to 18th of the top government contractors.  He also helped double the award of government contracts in its favor from $1.2 billion to $2.3 billion

Subsequently, in 2000 Cheney run for Vice President.  In view of the laws requiring politicians to make a full disclosure of their interest in any businesses Cheney filed his Financial Disclosure Statement before he ran for office.  He also divested himself of any financial interest from any companies he sold his stock in the company worth $30 million.  After he unloaded his stocks in Halliburton, he has stated that he has severed all ties with it and removed all his financial interest in the company. 

Though he may have retired as CEO of the company and divested himself of the stocks, it appears that he still has financial interest in Halliburton.  According to research, he still has unexercised stock options and deferred salary with Halliburton which falls within the definition of “retained ties” to his former company (Jarrett Murphy, 2003).   In fact, Sen. Frank Lautenberg has released statement that Halliburton paid Cheney $205, 298 in deferred salary in 2001 and 4162,392 in 2000.  He also has stock options of 100,000 at $54.50 per share, 33,333 shares at $128.125 and 300,000 shares at $39.50 per share (“Cheney may still have Halliburton ties”, 2003,  p.1)

All candidates or public office are required to make a full financial disclosure of all their business interest in a corporation.  The purpose of this requirement is to make sure that there will be no abuse of public confidence and conflict of interest once the candidate assumes public office.  The allegation that Cheney has stock options with Halliburton is a violation of his ethical duty to the public whom he is supposed to serve.  It is also is a serious violation of the existing laws on financial disclosure.  In this situation, Dick Cheney clearly has ties or linkages with his former employer.  His connection is a basis in saying that he still has financial interest Halliburton which is a ground for arguing that there may be a conflict of interest when the no-bid contract was awarded in favor of Halliburton.  This is also establish since there is evidence that months before the Iraq war, Cheney’s staff hosted an informational meeting with companies like Exxon Mobil Corp, Chevron Texaco Corp., and Conoco Phillips.

As a result, it is now a general perception among the public that Dick Cheney together with former President Clinton may have influenced the war in Iraq.  They may have started the war in Iraq because of the huge amount of money involved especially in the award of various contractors to private contractors like Halliburton. 

At present, there is no hard evidence that will directly implicate former Vice President Dick Cheney of any illegal act.  However, his official actions and his ties with Halliburton expose him to criticisms.  The failure of the government to conduct competitive bidding prior to the award of these contracts even complicates the situation.  

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