Kellogg, Brown and Root
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| Kellogg, Brown and Root | |
 |
|
| Type | Public |
|---|---|
| Founded | 1998 |
| Headquarters | Houston, |
| Key people | Dick Cheney Jerry L. Winchester |
| Industry | Engineering Construction Private military contractor |
KBR (formerly Kellogg Brown and Root) NYSE: KBR is an American engineering and construction company, formerly a subsidiary of Halliburton, based in Houston. After Halliburton acquired Dresser Industries in 1998, Dresser's engineering subsidiary, M.W. Kellogg, was merged with Halliburton's construction subsidiary, Brown and Root, to form Kellogg, Brown, and Root. KBR and its predecessors have won many contracts with the U.S. military during the 2003 invasion of Iraq, as well as during World War II and the Vietnam War. Halliburton announced on April 5, 2007 that it had finally broken ties with KBR, which has been its contracting, engineering and construction unit as a part of the company for 44 years.[1]
KBR is the largest non-union construction company in the United States.[citation needed]
On April 15, 2006, Halliburton filed a registration statement with the Securities and Exchange Commission to sell up to 20 percent of its KBR stock on the New York Stock Exchange (NYSE). Halliburton will still own at least 80 percent of KBR should the statement be approved. Halliburton has stated in its SEC filings its intent to eventually dispose of its KBR holdings, believing the two companies would best be served by being separate from the other.
On Thursday November 16, 2006, KBR shares were offered for the public in an Initial Public Offering with shares priced at $17. The shares closed on the first day up more than 22 percent to $20.75 a share. [1]
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[edit] History
Brown and Root was founded in Texas in 1919 by two brothers, George R. Brown and Herman Brown with money from their brother-in-law, Dan Root. The company began its operations by supervising the building of warships for the United States Navy.
One of its first large-scale projects, according to the book Cadillac Desert, was to build a dam on the Texas Colorado River near Austin during the Depression years. For assistance in federal payments, the company turned to the local congressman, Lyndon B. Johnson. Brown and Root was the principal source of campaign funds for Johnson's initial run for Congress in 1937 in return for persuading the Bureau of Reclamation to change its rules against paying for a dam on land the federal government did not own, a decision that had to go all the way to President Roosevelt, according to Robert A. Caro's book The Path to Power. After other very profitable construction projects for the federal government, such as building the Corpus Christi Naval Station, Brown and Root gave massive sums of cash for Johnson's first run for the U.S. Senate in 1941, a campaign so based on money that cash was literally given away at Johnson's campaign rallies. Even this money could not buy the election, because the eventually winner was even more corrupt. Brown and Root, however, violated IRS rules over campaign contributions, largely in charging off its huge donations as deductible company expenses. A subsequent IRS investigation threatened to bring criminal charges against Brown and Root as well as Johnson and others. It was not quashed until Roosevelt himself told the IRS to back off and allowed Brown and Root to settle for pennies on the dollar.
During World War II, Brown & Root built the Naval Air Station Corpus Christi and a series of warships for the U.S. Government.
In 1947, Brown & Root built one of the world's first offshore oil platforms.
According to Tracy Kidder's Pulitzer prize-winning book "Mountains Beyond Mountains," Brown & Root was a contractor in the Péligre Dam project. The project was designed by the U.S. Army Corps of Engineers and financed by the U.S. Export-Import Bank.
Following the death of Herman Brown, Halliburton acquired Brown & Root in December 1962. According to Dan Briody, who wrote a book on the subject, the company became part of a consortium of four companies that built about eighty-five per cent of the infrastructure needed by the Army during the Vietnam War. At the height of the war protesting of the 1960s, Brown & Root was derided as "Burn & Loot" by protesters.
In 1996, President Clinton awarded Brown & Root a contract to support U.S. and NATO troops as part of the SFOR operation in the Balkan region. This contract was extended to also include KFOR operations in Kosovo starting in 1999. The extent of their services included a vast array of logistical operations, historically under the jurisdiction of the military. Such operations included laundry services, meal services (Burger King, Subway, Papa John's), entertainment (internet and cable access), recreation (basketball courts and gym equipment). The reaction by many in the military and civilian leadership, and those on the ground was positive. The success of Brown & Root during the Clinton Administration further bolstered the opinion that the private sector could better determine how to provide deployed soldiers with adequate supplies for day to day life in a forward area.
In September 2005, under a competitive bid contract it won in July 2005 to provide debris removal and other emergency work associated with natural disasters, KBR started assessment of the cleanup and reconstruction of Gulf Coast Marine and Navy facilities damaged in the aftermath of Hurricane Katrina. The facilities include: Naval Station Pascagoula, Naval Station Gulfport, the John C. Stennis Space Center in Mississippi, two smaller U.S. Navy facilities in New Orleans, Louisiana and others in the Gulf Coast region. KBR has had similar contracts for more than 15 years.
[edit] Activities in Afghanistan
KBR was awarded a $100 million contract in 2002 to build a new U.S. embassy in Kabul, Afghanistan, from the State Department.
KBR has also been awarded 15 LOGCAP task orders worth more than $216 million for work under Operation Enduring Freedom, the military name for operations in Afghanistan. These include establishing base camps at Kandahar and Bagram Air Base and training foreign troops from the Republic of Georgia.
[edit] Activities in Iraq
The United States Army hired Kellogg, Brown and Root to provide housing for approximately 100,000 soldiers in Iraq in a contract worth $200 million, based on a long-term contract signed in December 2001 under the Logistics Civil Augmentation Program (LOGCAP). Other LOGCAP orders have included a pre-invasion order to repair oil facilities in Iraq; $28.2 million to build prisoner-of-war camps; and $40.8 million to accommodate the Iraqi Survey Group, which was deployed after the war to find hidden weapons of mass destruction.
The Army's actions came under fire from Congressman Henry Waxman, who, along with John Dingell, asked the General Accounting Office - the investigative arm of Congress - to investigate whether the U.S. Agency for International Development and the Pentagon were circumventing government contracting procedures and favoring companies with ties to the Bush administration. They also accused KBR of inflating prices for importing gasoline into Iraq [2][3]. In June 2003, the Army announced that it would replace KBR's oil-infrastructure contract with two public-bid contracts worth a maximum total of $1 billion to be awarded in October. However, the Army announced in October it would expand the contract ceiling to $2 billion and the solicitation period to December. As of October 16, 2003, KBR had performed nearly $1.6 billion worth of work. In the meantime, KBR has subcontracted with two companies to work on the project: Boots & Coots, an oil field emergency-response firm that Halliburton works in partnership with (CEO Jerry L. Winchester was a former Halliburton manager) and Wild Well Control, both of Texas [4].
[edit] Employee Safety
As of February 9, 2007 98 KBR employees and subcontractors have lost their lives, and more than 430 have been wounded by hostile action while performing services under the company's government contracts in Iraq, Afghanistan and Kuwait. [5]
[edit] Political connections and controversy
Brown and Root had a well-documented relationship with U.S. President Lyndon Johnson which began when he used his position as a Texas congressman to assist them in landing a lucrative dam contract. In return they gave him the funds for his 1948 Senate race against Coke R. Stevenson.[2] The relationship continued for years, with Johnson awarding military construction contracts to B&R.
U.S. Vice President Richard B. Cheney was chairman and chief executive officer of Halliburton from 1995 to 2000. He has been accused by political opponents of supporting the 2003 invasion of Iraq and providing work to KBR under contingency contracts to financially benefit himself and his business associates.
However, the Army contract which has been so controversial – LOGCAP (Logistical Civilian Augmentation Program) – has, since its inception, been issued under competitive solicitations; of the three LOGCAP contracts, KBR won the first, DynCorp the second, and KBR the third and current one, dubbed "LOGCAP III". LOGCAP is a contingency-based contract which is invoked at the convenience of the US Army as needed; the Task Orders under the contract are not competitively bid (as the overall contract was) and thus the reason for the confusion.
Although DynCorp had won LOGCAP II back in 1994, [3] President Clinton instead chose KBR and thus the Balkans Support Contract was created/awarded to KBR in February, 1999. [4] Even though the LOGCAP program is specifically for contingency operations such as the Balkans, there was no fanfare and negligible media coverage about KBR picking up that contract; however the Balkans work is sometimes mistakenly mentioned as being part of LOGCAP.
Most media controversy involves the LOGCAP III contract which KBR successfully, and competitively, bid for and won in 2001. While it is by far the most profitable of their contracts, the functions of that contract are often mixed with the RIO contract in which KBR was given in a no-bid process. RIO, (Restore Iraqi Oil), was awarded to KBR when the Department of Defense determined that KBR was "the only contractor that could satisfy the requirement for immediate execution of the plan"[5]. As of September, 2006, hearings are still being conducted into the RIO project over possible billing, management, and procurement violations.
One common theme is to use the term LOGCAP while using the dollar amounts from RIO, which was using LOGCAP funding for the initial staging and startup, (see reference #4).
Another prime topic of interest is the Defense Contract Audit Agency (DCAA) report on billing-methods for meals. The auditors knew about, but disregarded, the Army's requirement whereas KBR was directed to have a varying X-amount of meals prepared at certain location regardless of how many people actually used the service. Although KBR was paying for the food, the DCAA did not believe they should be able to charge the DoD for meals prepared but not served [6].. While the DCAA's function is merely to audit and present its findings to the contracting agency, many media outlets took those findings as a writ of corruption.
[edit] Changes to conditions of employment imposed on UK staff
Late in 2004, KBR announced that due to $1 billion in losses over the past four years, it needed to make annual savings to its cost base of $80-100 million. Despite repeated assurances that the pain would be shared world-wide, changes to staff terms and conditions (primarily longer hours for no extra pay, closing of the final salary pension scheme and removal of car allowances - the latter being effectively a salary reduction of around 8 to 10% for several mid-range grades) were imposed mainly on its UK offices, primarily in Leatherhead and Aberdeen. Staff who refused to sign the new terms and conditions were fired with effect from 31 March 2005. Although some concessions were made very late in the process when the level of discontent became clear, the strategy backfired as many key staff members left as a result, leaving some departments with severe staff shortages.[citation needed]
Many former staff remained for some time in legal dispute with the company relating to the manner in which the process was carried out. Several trade unions also responded, recruiting many new members who had not been involved in trades unions before, and assisting staff in taking legal action against the perceived contravention of employment laws.[citation needed] The matter between the company and those staff who were in dispute has since been resolved.
[edit] Legacy in Houston
Houston's convention center was named after company founder and namesake George R. Brown. Rice University's Brown College is also named for members of George Brown's wealthy family, who have made significant monetary contributions to Rice and other Houston schools.
[edit] References
- ^ Clanton, Brett. "KBR is officially out on its own." Houston Chronicle, April 5, 2007.
- ^ Bryce, Robert. "The Candidate from Brown and Root. (reprint)" Texas Observer, October 6, 2000.
- ^ Defenselink News "FAQ About Contracting",
- ^ Defenselink News "Contracts Awarded" DAAA09-99-C-0016, February 19, 1999.
- ^ USACE "USACE Information sheet on RIO"
- ^ Halliburton response"Halliburton statement"
