Pentagon Auditor Cites Heavy Fraud By Contractor

Armed with Stephenson's 66-page testimony, members of the commission pounded KBR, which was not invited to testify, for overcharging the government, and Army officials, who were invited, for failing to control contract costs.

Jeffrey Parsons, head of the Army Contracting Command, and Lee Thompson from the Army Materiel Command, were on the defensive throughout most of the hearing, which lasted more than three hours. They said the demands for KBR's services as the war in Iraq escalated stressed the contract and the accounting systems to manage it beyond planned capacities.

In a statement issued after the hearing ended, KBR spokeswoman Heather Browne defended the company's record, saying the scope of the work has "changed significantly from what KBR was first expected to support."

To avoid relying on a single contractor, Parsons and Thompson said the Army rebid the contract two years ago. Now, under what's known as LOGCAP IV, KBR, along with contractors DynCorp and Fluor, compete against one another. Costs should be reduced, they said, and government oversight increased.

But commission members said the Army continues to rely on KBR, defeating the purpose of expanding the number of contractors. They pointed to a letter sent Friday by two senators to Defense Secretary Robert Gates that says the Army hasn't done enough to make the logistics contracts more competitive.