Defense Contractors March 10, 2008, 6:09PM EST text size: TT
Boeing Will Protest Tanker Deal

The aircraft giant's formal protest of the Air Force's choice of Northrop/EADS means the GAO will have to weigh in
by Judith Crown and Keith Epstein

Boeing, battered by a startling failure to win a $40 billion Air Force contract, said it plans to file a formal protest with the federal government on Mar. 11.
While Boeing (BA) executives have complained bitterly about the Air Force award to an alliance of Northrop Grumman (NOC) and European Aeronautic Defence & Space, or EADS, they said the decision to protest wasn't made lightly. Only after a debriefing by Air Force officials on Mar. 7 and a weekend huddle with his top lieutenants did Boeing CEO Jim McNerney decide to take an unusual step that risks angering an important customer by challenging it officially.
Boeing might well have left the matter to Congress, where key members have already started kicking up a fuss over the decision, widely seen as a net loss of U.S. jobs in tough economic times—even though the Northrop Grumman/EADS consortium intends to add thousands of jobs at a new plant in Alabama.
"Fair and Transparent"
Ultimately Boeing has signaled an executive decision to play as tough as it can—even if it alienates foreign governments and commercial carriers that are key customers. In recent years foreign carriers have accounted for approximately half of commercial jetliner sales and have been the main customers for Boeing's new 787 Dreamliner commercial plane. With the delivery schedule for the 787 slipping and air travel under pressure as the U.S. economy slows, Boeing can hardly afford to lose customers.
"Our team has taken a very close look at the tanker decision and found serious flaws in the process that we believe warrant appeal," said McNerney in a prepared statement. The announcement was made after the close of the stock market on Mar. 10, during which Boeing shares fell 3%, to 74.38.
After a debriefing on the decision by the Air Force on Mar. 7, Boeing officials said they spent three days reviewing the case and concluded that a protest was necessary. Northrop Grumman said in a statement Monday that the competition was "the most rigorous, fair, and transparent acquisition process in Defense Dept. history," and that it is "committed to providing the Air Force and our nation's warfighters these urgently needed tankers at the earliest possible date." Last week, Air Force officials told Congress they stand by their decision, which they called "fair and transparent."
There's no guarantee Boeing will prevail. Protesting a decision to the federal government only indicates that the company feels it can win the case. A decision by the Government Accountability Office could take as long as 100 days, further delaying years of attempts by the Air Force to get new refueling tankers into the air to replace its Eisenhower-era aircraft.
How Many Jobs for Americans?
The protest to the GAO will hinge on narrow questions of whether the Air Force procurement was somehow faulty, either by not communicating the same information to both sides in the competition or not considering some of their arguments. "Were there discrepancies in how the two bidders were treated or flaws in how the data were assessed?" asks John Pike, director of a Web site specializing in military information.
Recent Boeing announcements have argued that since the Air Force opted for a larger aircraft in the Airbus 330, Boeing could have offered its 777 instead of the 767, which was the basis of its proposal. Boeing said in a statement that the Air Force's acceptance of the model put forth by Northrop led it to consider a much larger and expensive tanker than was previously discussed.
Congressional protests, which have centered on the loss of potential jobs and the handing off of sensitive military information to a foreign supplier, won't influence the GAO's decision, experts say. In any case, each side claims its plane will produce thousands of jobs for Americans.
Hearings on the Hill
But down the road, Congress could intervene directly to thwart the Northrop/EADS victory. It could vote not to authorize the financing of the purchase by directing the Air Force to rebid the contract or even split the award. Representative John Murtha (D-Pa.), who presides over the powerful House Defense Appropriations subcommittee, has reminded Air Force officials that Congress has the power of the purse and that it can cut appropriations for the program.
Members of Congress already have scheduled several hearings in which they aim to challenge Air Force officials. The first is set for Mar. 11.
Boeing appears to have broad support among congressional Democrats, who are highlighting the weak economy and ongoing job losses as the Presidential and congressional races heat up this year. "If the GAO upholds the protest, the politicians get a talking point," says Richard Aboulafia, vice-president of analysis for Teal Group, an aerospace consulting firm. "If it rejects it, they have the wind taken out of their sails."
But Boeing needs to be careful what it wishes for. A decision to reverse the award sends a signal that offshore suppliers need not apply for government work. And that could lead to a backlash among foreign governments, which could boycott Boeing for their military contracts.
Where Boeing once objected to the possibility of a contract split among the suppliers, that result could turn out to be a wise compromise, says Aboulafia. "It might turn out to be a good idea—even an excellent idea."
Crown is a senior correspondent for BusinessWeek and BW Chicago. Epstein is a correspondent in BusinessWeek's Washington bureau.

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McCain advisers lobbied for EADS in tanker deal
08:29 AM PDT on Tuesday, March 11, 2008
Associated Press



AP File photo
Republican presidential hopeful, Sen. John McCain, R-Ariz., Thursday, Feb.
7, 2008, in Washington, DC.


WASHINGTON, D.C. - Top current advisers to Sen. John McCain's presidential
campaign last year lobbied for a European plane maker that beat Boeing to a
$35 billion Air Force tanker contract, taking sides in a bidding fight that
McCain has tried to referee for more than five years.

Two of the advisers gave up their lobbying work when they joined McCain's
campaign. A third, former Texas Rep. Tom Loeffler, lobbied for the European
Aeronautic Defence and Space Co. while serving as McCain's national finance
chairman.

EADS is the parent company of Airbus, which teamed up with U.S.-based
Northrop Grumman Corp. to win the lucrative aerial refueling contract on
Feb. 29. Boeing Co. Chairman and CEO Jim McNerney said in a statement Monday
that the Chicago-based aerospace company "found serious flaws in the process
that we believe warrant appeal."

McCain, the Republican presidential nominee in waiting, has been a key
figure in the Pentagon's yearslong attempt to complete a deal on the tanker.
McCain helped block an earlier tanker contract with Boeing and prodded the
Pentagon in 2006 to develop bidding procedures that did not exclude Airbus.

EADS retained Ogilvy Government Relations and The Loeffler Group to lobby
for the tanker deal last year, months after McCain sent two letters urging
the Defense Department to make sure the bidding proposals guaranteed
competition.

"They never lobbied him related to the issues, and the letters went out
before they were contracted" by EADS, McCain campaign spokeswoman Jill
Hazelbaker said Monday.

According to lobbying records filed with the Senate, Loeffler Group
lobbyists on the project included Loeffler and Susan Nelson, who left the
firm and is now the campaign's finance director. Ogilvy lobbyist John Green,
who was assigned the EADS work, recently took a leave of absence to
volunteer for McCain as the campaign's congressional liaison.

"The aesthetics are not good, especially since he is an advocate of reform
and transparency," said Richard Aboulafia, an analyst with the aerospace
consulting firm Teal Group. "Boeing advocates are going to use this as
ammunition."

McCain, a longtime critic of influence peddling and special interest
politics, has come under increased scrutiny as a presidential candidate,
particularly because he has surrounded himself with advisers who are veteran
Washington lobbyists. He has defended his inner circle and has emphatically
denied reports last month in The New York Times and The Washington Post that
suggested he helped the client of a lobbyist friend nine years ago.

He has also cast himself as a neutral watchdog in the Air Force tanker
contract, one of the largest in decades.

"All I asked for in this situation was a fair competition," he told
reporters Monday at Lambert Field in St. Louis, home of a Boeing fighter jet
plant.

On Friday, he defended his aggressive oversight: "I never weighed in for or
against anybody that competed for the contract. All I asked for was a fair
process. And the facts are that I never showed any bias in any way against
anybody - except for the taxpayer."

Last week, Air Force Secretary Michael Wynne told the Senate Armed Services
Committee that the EADS-Northrop Gruman plane was "clearly a better
performer" than the one proposed by Boeing.

It is unclear what EADS hired the lobbyists to do. Loeffler and Airbus
officials did not immediately respond to phone and
e-mail messages left late Monday.

A Boeing spokesman declined to comment Monday on the links between McCain
and lobbying efforts on behalf of EADS.

But Boeing supporters already have begun to accuse McCain of damaging
Boeing's chances by inserting himself into the tanker deal.

One of them, Rep. Norm Dicks, D-Wash., said the field was "tilted to
Airbus" because the Pentagon did not weigh European subsidies for Airbus in
its deliberations - a decision he blamed on McCain. Everett, Wash., is where
Boeing would perform much of the tanker work, and Dicks is a senior member
of the House Appropriations defense subcommittee.

In December 2006, just weeks before the Air Force was set to release its
formal request for proposals, McCain wrote a letter to the incoming defense
secretary, Robert Gates, warning that he was "troubled" by the Air Force's
draft request for bids.

The United States had filed a complaint with the World Trade Organization
alleging that Airbus unfairly benefits from European subsidies. Airbus in
turn argued that Boeing also receives government support, mostly as tax
breaks.

Under the Air Force proposal, bidders would have been required to explain
how financial penalties or other sanctions stemming from the subsidy dispute
might affect their ability to execute the contract. The request was widely
viewed as hurting the EADS-Northrop Grumman bid.

The proposed bid request "may risk eliminating competition before bids are
submitted," McCain wrote in a Dec. 1, 2006, letter to Gates. The Air Force
changed the criteria four days later.

Dicks said the removal of the subsidy language was a "game-changer" that
favored EADS over Boeing.

"The only reason that they could even bid a low price is because they
received a subsidy," Dicks said last week. "And Senator McCain jumped into
this and said that (the Air Force) could not look at the subsidy issue -
which I think is a big mistake, especially when the U.S. trade
representative is bringing a case in the (World Trade Organization) on this
very issue."

EADS' interest in the tanker deal is evident in the political contributions
of its employees. From 2004 to 2006, donations by its employees jumped from
$42,500 to $141,931, according to an analysis by the nonpartisan Center for
Responsive Politics. So far this election cycle, company employees have
donated $120,350. Of that, McCain's presidential campaign has received
$14,000, the most of any other member of Congress this election cycle.

McCain prides himself in the role he played blocking an earlier version of
the tanker deal that gave the contract to Boeing. As chairman of the Senate
Commerce Committee and of an Armed Services subcommittee, McCain led an
investigation that eventually helped kill that contract in 2004. A former
Air Force official and a top Boeing executive both served time in prison,
and the scandal led to the departure of Boeing's chief executive and several
top Air Force officials.

"I intervened in a process that was clearly corrupt," McCain said Friday.
"That's why people went to jail."

While McCain has praised Boeing for fixing its practices, his campaign said
the experience prompted him to demand "a full, fair and open competition."
His letters - one to Deputy Defense Secretary Gordon England in September
2006 and the other to Gates - were sent with that spirit in mind, Hazelbaker
said Monday.

Once the rules were in place, Hazelbaker said, bidders submitted proposals,
the Air Force reviewed them and the contract was awarded.

"That is a process that McCain, appropriately, had absolutely no role in,"
she said.

Aerospace & Defense March 10, 2008, 12:01AM EST text size: TT
Boeing's Audacious Allies

Supporters of the planemaker cry foul when it loses a U.S. military contract to a foreign rival, but 70% of its commercial Dreamliner is made overseas
by Judith Crown and Keith Epstein

When is globalization a bad word? To Boeing (BA) backers, it's when the competition—a consortium led by European Aeronautic Defence & Space (EADS) and Northrop Grumman (NOC)—wins the battle for a lucrative U.S. Air Force contract for airborne-refueling planes. Ever since the Air Force announced its decision on Feb. 29, Americans from Seattle to Capitol Hill have railed about lost jobs and the risks of foreign-made military assets.
But what about when Boeing wins a big contract? You don't hear many complaints then, despite the fact that large portions of the parts and labor in its commercial planes come from overseas—70% of Boeing's new 787 Dreamliner and 60% of other models are made outside the U.S. Even many of Boeing's military planes have many foreign parts in them. Key portions of the fuselage and tail on the airborne-refueling plane Boeing wanted to build for the Air Force would have involved non-U.S. companies.
That far-flung supplier network is necessary to stay competitive, Boeing says. However, it can create headaches for the manufacturer, too. Boeing has been struggling to reassess its 787 delivery schedule since January, an effort that the company reaffirmed on Mar. 7 is ongoing. Analysts believe that means the first delivery of 787s to customers will be pushed back to the third quarter of 2009, from the current target of early in the first quarter. One reason: Problems with completing center and rear fuselages of the plane at a plant operated in Texas by an alliance of Italy's Alenia Aeronautica and Vought Aircraft Industries of Dallas.
Lost Jobs in an Economic Downturn
Getting all the 787 parts and components to the sub-assemblers at the right time has turned out to be more challenging than anticipated, says Cai Von Rumohr, an aerospace analyst at Cowen & Co. (COWN) "What was supposed to be their salvation now works against them." He says Boeing had projected deliveries of 109 Dreamliners in 2009. "I'm assuming 55, but that number could be 45."
A large military contract raises entirely different issues of nationality, of course. Foreign contractors have long complained they face long odds of landing the most lucrative and prestigious awards. Similar issues of U.S. jobs and national security were raised in 2005 when a contract for 28 helicopters for the President was awarded to a team consisting of Lockheed Martin (LMT) and the Italian company AgustaWestland, a unit of Finmeccanica (SIFI.MI), instead of the U.S. favorite, Sikorsky, a division of United Technologies (UTX).
Today, Boeing's champions are crying foul that the Air Force awarded a $40 billion-plus contract for aerial refueling tankers to a foreign rival, EADS (EAD.PA), albeit in partnership with the domestic Northrop. Some of them argue the Pentagon should have considered the cost in U.S. jobs during an economic downturn, not just military capability and cost. "I have talked about the dismay Boeing workers felt in my home state of Washington," Senator Patty Murray (D-Wash.) said in a speech on the Senate floor on Mar. 7. She added that she also worries about "the ability to control our national security once we've effectively turned over control of our military capability and technology to a foreign government."
Mulling Complaint to GAO
Boeing officials have been careful not to say that the Pentagon should have favored their "American" plane. They have kept their criticism focused on the terms the Air Force set for the competition and the quality of the two offerings. Yet they may still try to get the tanker decision overturned. On Mar. 7, after getting briefed by the Pentagon about its reasons for giving the contract to EADS/Northrop, Boeing executives said they will give serious consideration to filing a protest (BusinessWeek.com, 3/7/08) with the Government Accountability Office (GAO), the investigative arm of Congress.
They are sure to get plenty of support. "It's an irresistible issue during an election year," says Richard Aboulafia, vice-president of analysis for Teal Group. But to some observers, such protests ignore the realities of modern aerospace contracting, for both commercial and military projects. The aerospace giants increasingly look to suppliers with expertise, wherever they may be.
For example, two of the Japanese suppliers for the 787 had experience supplying composite parts for high-speed trains. In the case of the Dreamliner, so much new manufacturing space was needed—3 million square feet—that Boeing spread the work around the world so that parts could be produced concurrently, rather than sequentially, which would take more time. Given the complexity of the newest aircraft, any big order is likely to ship some amount of work overseas.
International Supply Chain Grows
"It's a little hard to complain about foreign content on the future tanker when Boeing's Dreamliner was designed for manufacture by a global supply chain," says Loren Thompson, a defense analyst at the Lexington Institute with close ties to the military. In fact, he asserts, the 787 "will probably end up having more foreign content than the Airbus tanker."
Indeed, the Dreamliner's 70% foreign content compares with 40% foreign content for the winning refueling tanker as designed by Northrop and EADS, and 15% for the Boeing tanker design. Boeing spokesperson Daniel Beck dismisses the comparison "between an aircraft developed solely for an international commercial market and a tanker aircraft developed solely as a military asset." Still the technologies are similar. Both tankers are juiced-up commercial jetliners after all—in Boeing's case, an upgraded 767; in EADS/Northrop's case, an Airbus 330.
Boeing's supply chain was becoming more and more international even before the birth of the 787. Where previously it had outsourced parts for planes but completed assembly in Washington, with the 787 it contracted out design and sub-assembly responsibilities as well.
"Boeing's supply chain is global, its sales are global, and even its current ad campaign promotes its globalness," says Todd Malan, president and CEO of the Organization for International Investment, a Washington-based association representing U.S. operations of foreign companies. "It's a little disingenuous for them to criticize others in the industry for being globally integrated."
Crown is a senior correspondent for BusinessWeek and BW Chicago. Epstein is a correspondent in BusinessWeek's Washington bureau.

Defense Contracts March 4, 2008, 12:05PM EST

Tanker Deal: Why Boeing Shouldn't Protest
Despite its dismay over losing a huge Air Force contract, Boeing doesn't want to delay a plane the military needs
by Keith Epstein

Boeing (BA) executives, bewildered at losing a multibillion-dollar contract for a fleet of refueling tanker aircraft, are girding for battle as they lay legal groundwork for kicking up a more official fuss—the filing of a formal protest of a U.S. Air Force decision to buy from Northrop Grumman (NOC) and partner European Aeronautic Defence & Space (EAD.PA).
But even with billions at stake, shares tumbling, and an anticipated dent in earnings, there are some good reasons why Boeing shouldn't complain—and just might not. Sources say these downsides, too, are being debated in the company's executive suite and that no decision on a protest will be made until after a Pentagon briefing on the matter. Explains one Boeing source: "We certainly wouldn't want to aggravate our customer"—the Air Force.
Even crafting a statement the company issued Mar. 4 proved painstakingly tedious, as insiders strived to strike a balance in tone. Executives wanted to convey their sense that the company was misled by the Air Force. If Boeing had known the Air Force was seeking a plane with more fuel-carrying capacity and cargo space, say company insiders and a congressional source, it would have based its proposal on the larger Boeing 777 instead of the 767. The statement by Mark McGraw, Boeing's vice-president for 767 tanker programs, sidestepped some of the details but got to the point: "There may well have been factors beyond those stated in the [Air Force request for proposal], or weighted differently than we understood they would be, used to make the decision."
Boeing also complained about having to wait until Mar. 12 for a formal briefing on why it was not selected, but received the hearing on Mar. 7. Company spokesman Dan Beck said then that Boeing won't be deciding whether to file a formal protest for "a few days." The company then has 10 days. But a protest might not be necessary. Congress has already stepped into the fray, grilling two top Air Force acquisition officials, Sue Payton and Lt. Gen. John "Jack" Hudson, at a Mar. 5 hearing of the House Defense Appropriations subcommittee, during which the Democratic chairman, John Murtha of Pennsylvania, reminded them that Congress has the power of the purse and can cancel the contract.
Patchwork Planes
The realities are complex. A protest could add yet another yearlong delay to replacing the military's aged fleet of KC-135 Stratotankers. These Dr. Strangelove-era airborne gasoline stations first entered service in the 1950s and are routinely falling apart and patched up. Yet they remain critical to U.S. global warfighting because they enable U.S. fighter jets and bombers to continue missions rather than return to aircraft carriers or bases.
A protest also could prolong attention to a series of embarrassments and turbulence for Boeing in recent years, including a scandal involving an earlier replacement tanker bid. Boeing also had troubles delivering tankers to other countries. And development of its high-tech "virtual fence" along the U.S.-Mexican border has been plagued with so many problems that deployment is now stalled.
Boeing has had difficulties on the commercial airliner side as well. Delays in the 787 Dreamliner over the last six months have depressed the company's stock. The tanker deal, while potentially worth $100 billion over its life, amounts to a less impressive revenue source on an annual basis. But it represents one of the largest military aircraft contracts in modern times, and comes at a point when projected sales increases for Boeing's defense unit are modest—only about $1 billion above the current $32 billion a year.
Even before the Gulf War, the nation's fleet of Stratotankers was stretched thin and at risk of having trouble with failing parts and systems that would ground too many tankers at once. Some of the planes have plywood floors, cockpit windows that come loose, and cracks in the landing gear—among countless other costly maintenance headaches. Putty holding parts in place sometimes give the planes the appearance of having Band-Aids, which is essentially what they are. Before each Stratotanker takes off, a maintenance crew must check hundreds of items on a list the size of a phone book. The inspections require eight hours, compared with only two hours for the average modern jet. Sometimes, mechanics unable to find replacement parts have had to improvise their own. Once, in 2003, parts fell from a landing KC-135, prompting repairs to flaps on 14 planes.
Strategic risks and soaring maintenance costs made the Air Force eager for a new fleet—years ago. But bureaucracy and scandal delayed acquisition, most recently in 2003 when the Air Force, after a congressional investigation spearheaded by Senator John McCain (R-Ariz.), halted an order to lease 100 tankers from Boeing.
Prepare for Hearings
The Air Force now intends to "debrief" Boeing on Mar. 7, providing a detailed explanation about why it lost the contract. Boeing then has 10 days to file a protest with the Government Accountability Office. A decision from the GAO, which has adjudicated a rising number of protests from defeated contractors in recent years, could take 100 days.
If Boeing persists in a protest, the public noise surrounding the controversial award won't likely subside, either; the railing of Boeing supporters, Presidential candidates on the campaign trail, and grumbling by labor unions in recent days would likely have echoes in congressional hearings, possibly leading to still more delays in replacing the nation's refueling tankers. House Speaker Nancy Pelosi (D-Calif.) said Mar. 4 that Congress will schedule hearings on the Air Force decision. Pelosi said in a statement that the award to Northrop Grumman "raises serious questions that Congress must examine thoroughly."
While the Air Force has declined to disclose details of its extensive internal deliberations over the tanker contract, the choice may have been easier than advertised. Boeing, in fact, may have been woefully far behind. Loren Thompson, a Lexington Institute defense analyst well connected and widely respected in the Pentagon, said Mar. 3 that "Northrop Grumman's victory was not a close outcome."
While both Boeing and Northrop Grumman satisfied requirements established by the Air Force, Northrop was clearly the better buy. With Northrop, the military could have "49 superior tankers operating by 2013," Thompson said, while Boeing's proposal would give it "only 19 considerably less capable planes" by then.
Measuring Up the Aircraft
World markets, politicians, labor unions, and others may have been stunned by the upset, but Thompson insists that "Boeing didn't manage to beat Northrop in a single measure of merit"—not in flight range, fuel capacity, speed of delivery, or cost. "Boeing would have to find a lot of problems to overturn this outcome," Thompson tells BusinessWeek. The Northrop tanker carriers 250,000 pounds of fuel, compared to 202,000 on Boeing's—a crucial difference considering that refueling tankers must often circle for many hours when military operations require.
Thompson's information, which he disclosed Mar. 3, irritated Boeing officials, who are now seeking ways to craft a delicate statement that criticizes the military for speaking with Thompson and some members of Congress before explaining in detail to the company why it lost. Thompson, for his part, is a longtime military analyst with deep ties to the top military brass and defense contractors. Boeing executives also are said to be troubled by a "disconnect" between what the military said it wanted and the reasons given by the Air Force for why it chose Northrop. Now Boeing must wait a week before hearing from the Air Force the detailed reasons for its defeat.
Air Force officials are eager to put the controversy behind them and secure the tankers they need. And, in considering a protest, Boeing may risk delaying an overdue overhaul of the U.S. military's airborne backbone to refight a battle it can't win.
Epstein is a correspondent in BusinessWeek's Washington bureau.

Water Makes US Troops in Iraq Sick
The Associated Press
Sunday 09 March 2008

Washington - Dozens of U.S. troops in Iraq fell sick at bases using "unmonitored and potentially unsafe" water supplied by the military and a contractor once owned by Vice President Dick Cheney's former company, the Pentagon's internal watchdog says.
A report obtained by The Associated Press said soldiers experienced skin abscesses, cellulitis, skin infections, diarrhea and other illnesses after using discolored, smelly water for personal hygiene and laundry at five U.S. military sites in Iraq.
The Defense Department's inspector general's report, which could be released as early as Monday, found water quality problems between March 2004 and February 2006 at three sites run by contractor KBR Inc., and between January 2004 and December 2006 at two military-operated locations.
It was impossible to link the dirty water definitively to all the illnesses, according to the report. But it said KBR's water quality "was not maintained in accordance with field water sanitary standards" and the military-run sites "were not performing all required quality control tests."
The report said KBR took corrective steps and was providing adequate water quality by November 2006. But military units at the two sites they controlled were still failing to perform required quality control tests and maintain appropriate records by that time.
"Therefore, water suppliers exposed U.S. forces to unmonitored and potentially unsafe water," at the military sites by late 2006, the report said.
The problems did not extend to troops' drinking water, but rather to water used for washing, bathing, shaving and cleaning. Water used for hygiene and laundry must meet minimum safety standards under military regulations because of the potential for harmful exposure through the eyes, nose, mouth, cuts and wounds.
The KBR sites were Camp Ar Ramadi, Camp Q-West and Camp Victory. The military sites were Logistics Support Area Anaconda and Camp Ali.
The inspector general's study confirmed AP reports on the contaminated water in early 2006 and provided additional details on the scope of the problem at the Iraq bases. In January that year, interviews and internal company documents disclosed the problems at Ar Ramadi and showed that KBR employees could not get the company to inform base residents.
Halliburton Co., then KBR's parent company, disputed the allegations even though they were made by its own employees and documented in company e-mails. In March 2006, the AP obtained an internal Halliburton report that, in one instance, the company missed contamination that could have caused "mass sickness or death" at Ar Ramadi.
The report said the event at Ar Ramadi could have been prevented if KBR's reverse osmosis units on the site had been assembled, instead of relying on the military's water production facilities.
Halliburton is the oil services conglomerate that Cheney once led. Congressional Democrats long have complained that KBR has benefited from its former ties to Cheney.
KBR, responding to the inspector general's report, said its water treatment "has met or exceeded all applicable military and contract standards." The company took exception to many of the inspector general's assertions. "KBR's commitment to the safety of all of its employees remains unwavering," the company said in a statement to the AP.
KBR provided water treatment to U.S. troops under a large-scale defense contract that also included housing and food to soldiers in Iraq, Afghanistan, Kuwait, Djbouti and Georgia.
The military has "taken the appropriate measures to correct the problem and ensure we provide the appropriate oversight of the system," said Navy Capt. James Graybeal of the U.S. Central Command, which oversees U.S. troops in the Middle East.
North Dakota Sen. Byron Dorgan, who has led Democratic inquiries into contracting abuses in Iraq, said the inspector general has backed up what those earlier hearings uncovered. "KBR was not doing its job" and U.S. forces had water that did not meet Army standards, Dorgan said.
"I think it's outrageous that KBR tried to deny that there was a problem, especially when it turned out that there were dozens of U.S. troops reporting water-related illnesses," he said.
The inspector general investigated the 2006 reports at Dorgan's request.
The inspector general's report said some troops noticed problems with the water. Between October 2004 and May 2005, troops at Camp Ar Ramadi said bathwater was discolored and had an unusual odor. The report said KBR failed to treat the nonpotable water and monitor water quality during the same period.
At Camp Q-West, KBR inappropriately delivered chlorinated wastewater for showers and latrines without informing military preventive medicine officials, the report said. "KBR did not monitor or record the quality of water at point-of-use containers before April 2006, even though the ... contract required the company to do so," the report added.
Medical records for troops at Camp Q-West indicated 38 cases of illnesses commonly attributed to problem water. These include skin abscesses, cellulitis, skin infections and diarrhea. Doctors diagnosed 24 of the cases in January and February 2006, the same period when medical officials warned of a rise in bacterial infections at the base.
In addition, military medical records - tied to no particular base in Iraq - showed 26 cases of food and waterborne diseases, including hepatitis, giardiasis and typhoid fever.
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