Blackmail

KBR shook down the Army for more than $1 billion it hadn’t earned by threatening to shut off food to the troops unless it was paid.

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!

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: Markarkleiman-at-gmail.com