Panel: Taxpayers gouged for $600m

Report probes insurance for Iraq workers

Email|Print|Single Page| Text size + By Richard Lardner
Associated Press / May 16, 2008

WASHINGTON - A poorly run Pentagon program for providing workers' compensation for civilian employees in Iraq and Afghanistan has allowed defense contractors and insurance companies to gouge American taxpayers, a House committee said yesterday.

Insurance companies alone have collected nearly $600 million in excessive profits over the past five years, says a Democratic staff report from the House Oversight and Government Reform Committee, but the Defense Department refuses to adjust its approach to managing the program.

According to the committee, the Pentagon allows its contractors to negotiate their own insurance contracts. By contrast, the State Department, US Agency for International Development and the Army Corps of Engineers have all selected a single insurance carrier to provide the insurance at fixed rates.

"What makes the situation even worse is the people this program is supposed to benefit - the injured employees working for contractors - have to fight the insurance companies to get their benefits," Representative Henry Waxman, a California Democrat and committee chairman, said at a hearing yesterday. "Delays and denials in paying claims are the rule."

KBR Inc., one of the largest defense contractors in Iraq, paid the insurance giant AIG $284 million for medical and disability coverage under the Defense Base Act, a reference to the federal law mandating the insurance. Because of the way KBR's contract is structured, this premium, along with an $8 million markup for KBR, gets billed to taxpayers.

"Out of this amount, just $73 million actually goes to injured contractors, and AIG and KBR pocket over $100 million as profit," Waxman said.

In an e-mailed statement, AIG spokesman Chris Winans said the company is reviewing the report. But AIG is confident its coverage is accurately and fairly priced, given the high risks to workers in war zones and the potential for sizable claims, Winans said.

All contractors doing work overseas for US government agencies are required to insure their civilian employees, many of whom are handling dangerous jobs in hostile areas. Contractors get the coverage from private insurance companies, then they're reimbursed for what they spend. The insurance costs are included in the contract's overall price.

The Associated Press reported Wednesday that the Army Criminal Investigation Command has opened an investigation into two companies working on Iraq reconstruction that have been accused of padding their profits by claiming reimbursements from the Corps of Engineers for insurance coverage they never purchased.

The probe of two Iraqi companies in Tikrit - Sakar al-Fahal and al-Jubori - led the Corps of Engineers to scour its records for evidence of fraud by other contractors hired with billions of dollars to help rebuild infrastructure devastated by the war.

Representative Darrell Issa, a California Republican, asked what the Corps of Engineers is doing to stop other companies from bilking the federal government for unpaid insurance coverage.

James Dalton, chief of engineering and construction for the Corps of Engineers, said contracting officers are trained to look for signs of fraud. The case involving the Iraqi companies, Dalton said, "was found through routine oversight of our contracts."

Waxman asked John Needham of the Government Accountability Office if US taxpayers were getting the most for their money.

"It's not apparent they are," Needham answered, adding that the Defense Department has been unable to collect data on how much is spent on insurance for defense contracts.

Richard Ginman, a senior Pentagon acquisition official, said the Army Corps of Engineers' approach stems from a pilot program the Defense Department began in 2003 to offer insurance at lower rates after contractors doing business in Iraq complained about the high cost of the mandatory coverage.

The Pentagon is still studying that program's results to determine whether to require all military branches and agencies to use it, Ginman said.

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