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Testimony

February 07, 2007

House of Representatives

Oversight and Government Reform

Waste, Fraud and Abuse: Part 2 Iraq Reconstruction

Opening Statement of Henry A. Waxman 

Chairman, 

Committee on Oversight and Government Reform 

Committee on House Oversight and Government Reform 

February 07, 2007 

Today the Committee will investigate potential fraud, waste, and 

abuse in the almost indecipherable world of contractors and 

subcontractors. 

For the last two years I have tried to get a clear answer to what 

I thought was a simple question: How much money a Halliburton 

subsidiary named KBR and private security subcontractors were 

making under the Army's troop support contract called LOGCAP. 

We know that the war in Iraq has given private contractors an 

unprecedented role in providing security services. Almost $4 

billion in taxpayer funds has been paid for private security 

services in the reconstruction effort alone. But sorting out 

overhead, subcontracts, sub subcontracts, profit, and performance 

has been nearly impossible. 

For over 18 months, the Defense Department wouldn't even respond 

to my inquiry. When it finally replied last July, it didn't 

supply the breakdown I requested. In fact, it denied that private 

security contractors did any work at all under the LOGCAP 

contract. 

We now know that isn't true, and today we will try to understand 

the layers of subcontractors, with a particular emphasis on the 

Blackwater company. 

On March 31, 2004, four Americans working as private security 

personnel for Blackwater, all of whom were military veterans, 

were ambushed and killed in Fallujah while on a protection 

mission. Their tragic death became a turning point in public 

opinion about the war and directly resulted in a major U.S. 

military offensive, which is known as the First Battle of 

Fallujah. 

Twenty-seven American soldiers and over 800 insurgents and Iraqi 

civilians died in that battle, and military observers believe it 

helped fuel an escalation of the insurgency. 

It is now almost three years later, and we still don't know for 

sure the identity of the prime contractor under which the four 

Blackwater employees were working. What we do know is that 

Blackwater was providing security services under a contract with 

a Kuwaiti company called Regency, and that Regency was itself a 

subcontractor for ESS Support Services Worldwide, which in turn 

was a subcontractor providing dining services and construction 

services for other contractors such as KBR and Fluor Corporation. 

We also know that both Blackwater and Regency were adding 

significant markups to the cost of providing the security 

services. 

And on top of that, the prime contractor - whomever it was - was 

making its own percentage off the contract. Blackwater initially 

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indicated that it believed KBR was the prime contractor under the 

LOGCAP contract. Three months ago, however, ESS told the 

Committee that the Fluor Corporation was actually the prime 

contractor for Blackwater's work in Fallujah. The Fluor 

Corporation disputes this, and the Defense Department doesn't 

seem to be sure what's going on. 

It's remarkable that the world of contractors and subcontractors 

is so murky that we can't even get to the bottom of this, let 

alone calculate how many millions of dollars taxpayers lose in 

each step of the subcontracting process. 

But the impacts of contracting waste go beyond just dollars and 

cents. Today four family members of the four murdered Blackwater 

employees will share their testimony with us. They believe 

Blackwater sent their relatives into Fallujah unprepared and 

without armored vehicles, a rear gunner for each vehicle, or 

heavy automatic weapons to defend against attacks. 

Their experience tells them that taxpayer dollars never reached 

the security personnel on the ground. They believe that the money 

for protective equipment took a backseat to the multiple layers 

of contractor profits. 

I don't know if we will be able to resolve that issue today, but 

I am deeply troubled by one document we have found in preparing 

for this hearing. The day before the four soldiers were killed, a 

Blackwater employee sent an e-mail alerting superiors that a lack 

of equipment, armored vehicles, and other safety equipment left 

the team unprepared to begin its mission. That warning was 

seemingly ignored and we need to explore that further. 

Without objection, this email will be made part of the hearing 

record today. 

I've already learned that sorting out the webs of subcontracts is 

confusing work. But our Committee has an absolute obligation to 

taxpayers to make sure their tax dollars are well spent and not 

siphoned off into billions of dollars of unnecessary overhead. 

And even more important, we have an inviolate obligation to the 

men and women in harm's way - and to their families - to make 

certain that their safety doesn't take a backseat to corporate 

profits or wasteful spending. 

I look forward to learning more from our witnesses this morning. 

 HENRY A. WAXMAN

 Chairman

 Committee on Oversight and Government Reform

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