A Pyrrhic Victory In The Battle Against War Profiteering

Today's Washington Post tells us that Halliburton has lost the Logistics Civil Augmentation Program contract (LOGCAP). The US Army has decided not to exercise the option for a sixth year of this contract. That is a good thing considering Halliburton has been all alone to eat at the trough in Iraq, right? Probably not. It's more a PR move than anything substantial.

Meet the new defense contractor ripping off the Pentagon in Iraq, same as the old one, in fact, exactly the same one only without restraint. The problem here is that any other contractor that would want to compete with Halliburton for these contracts would have to eat massive mobilization costs just to begin to compete, and I'm sure that the other subcontractors already working in Iraq would price protect Halliburton against other bidders. In other words, it would be a loser for another contractor to try to go up against Halliburton in Iraq.

This fact is indeed a problem. You see, now that the Army is going to get competitive bids in Iraq, Halliburton is no longer constrained by their previous cost plus contract which guaranteed them cost plus 1% with a 2% incentive bonus for performance, which everybody pretty much collects no matter how bad their service. I know that doesn't sound like much of a mark-up but when you're subcontracting out work to companies that are subsidiaries of your company that can charge much higher mark-ups, it adds up quick.

Now, however, Halliburton can openly charge more due to a built-in competitive advantage from being the only contractor in theater able to do such work. It was a mistake to change horses midstream when all that was really required was better auditing. Real changes in the way the Army procures such services needs to be done in peacetime to guarantee true competition.