Pentagon shifts Iraqi fuel supply duties away from USACE

Jan. 12, 2004
US Pentagon officials Dec. 23 directed the Defense Energy Support Center (DESC) to begin overseeing fuel imports for the Iraqi civilian population.

US Pentagon officials Dec. 23 directed the Defense Energy Support Center (DESC) to begin overseeing fuel imports for the Iraqi civilian population.

DESC said Dec. 31 it plans to solicit bids "as soon as possible," and suppliers will be given a "reasonable" time to prepare a bid, most likely 20-30 days.

In a presolicitation notice, DESC said the contractor will manage receipt and accounting of fuel inventories, and coordinate the movement of fuel deliveries within Iraq. Contract performance will be Apr. 1 through June 30, with three 3-month options to renew.

"This procurement is unrestricted, and all responsible sources may submit an offer," DESC said.

Fort Belvoir, Va.-based DESC historically oversees US military fuel purchases. But in the case of Iraq reconstruction, the US Army Corps of Engineers, instead of DESC, originally assumed responsibility for contracting fuel supplies. That's because buying and distributing fuel was included in a much larger sole-source contract given to Halliburton Co. subsidiary KBR in spring 2003.

USACE is the Pentagon agency that now oversees that KBR contract; the work detail also includes repairing and upgrading oil infrastructure. But after a political firestorm over KBR's no-bid contract erupted, the Pentagon took steps to limit the damage. US officials signaled in October that DESC, instead of USACE, would probably manage future fuel contracts.

In a related action, USACE announced in October it would replace the existing KBR contract with two new oil infrastructure contracts awarded through a competitive bidding process. Two months later the Pentagon narrowed the competition because it excluded companies based in France, Germany, Russia, China, and Canada from participating, citing security issues.

Under the Pentagon's decision, companies from those countries can still get work as subcontractors. Moreover, if and when any new oil infrastructure contracts are solicited, many if not all of the countries may already be in better standing with the US government, given the mercurial nature of geopolitics, according to industry sources.

Pentagon officials may announce an award for a $1.2 billion contract in southern Iraq and a $800 million contract for northern Iraq this winter, possibly in mid-January, although that timetable may slip (OGJ Online, Dec. 10, 2003).

Transition in January

A DESC team plans to meet with Coalition Provisional Authority officials in mid-January to discuss the terms of the new fuel bids, according to a DESC spokesperson.

"DESC will work with the Iraqi Ministry of Oil and its marketing arm, the State Owned Marketing Organization, to assist them in meeting the country's imported petroleum product requirements, such as diesel, gasoline, kerosine, and LPG. Although the Ministry of Oil is currently meeting the majority of Iraq's fuel requirements through domestic production, significant quantities of all types of fuel must be imported to meet demand," DESC said.

DESC added it will solicit and award contracts "on a fair and competitive basis" as soon as possible; typically the process takes 60-90 days, although a short-term contract may be considered.

DESC said once the contracts are awarded, fuel prices will be posted on its web site at www.desc.dla.mil.

DESC said it also could extend existing contracts as necessary or put in place a "bridge" contract using limited competition, similar to what USACE did with KBR for the current fuel contract; lawmakers criticized the fuel contracts as being too expensive.

Meanwhile, a preliminary Pentagon audit found evidence of overcharging, possibly as high as $61 million, although Halliburton maintains it did exactly what the government told it to do. The company continues to strenuously deny that it gouged the government and in this latest action pledged to work cooperatively to ensure supplies are not disrupted.

"The task of transporting fuel into Iraq was always understood by KBR to be temporary," a Halliburton spokes- person said. "KBR has repeatedly tried to transfer the fuel delivery mission to a local supplier because it is dangerous for our people. We will work with the DESC to perform a smooth transition of the transportation mission.

"We are proud to serve our troops, providing things like food, phones, and the comforts of home. And we are resolved to assist the people of Iraq by providing essentials like fuel for homes and transportation."