KBR had the Army over a barrel: if the Army refused to pay KBR’s inflated bills (more than $1B in unjustified costs), KBR threatened to shut off payments to its subcontractors, which in turn would stop feeding the army in Iraq.
Of course, the fact that KBR was then a subsidiary of Halliburton didn’t hurt its bargaining position either; the Halliburton board knew what it was doing when it gave Dick Cheney $80 million he wasn’t contractually entitled to as he moved from its executive suite to the White House. But even a less-well-connected company would have had an intolerably powerful bargaining position vis-à-vis the army: the company could basically hold the troops hostage.
And KBR was able to squeeze more than money out of the Army: it also demanded and got high performance ratings, which helped it win a share of a contract for $150 billion just awarded for support functions in Iraq.
Hilzoy is right: time to de-privatize, or at least insist on always having a second source ready to take over, as any sane private company does when contracting out an essential function.
What a great issue for the Obama campaign!