House Rips Pentagon Insurance Contracts

A poorly run Pentagon program for providing workman's compensation for civilian employees in Iraq and Afghanistan has allowed defense contractors and insurance companies to gouge U.S. taxpayers, a House of Representatives oversight committee said Thursday.

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

According to the committee, the Pentagon allows its contractors to negotiate their own insurance contracts. By contrast, the State Department, U.S. 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," committee Chairman Henry Waxman, a Democrat, said at a hearing Thursday. "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. Due to the way KBR's contract is structured, this premium, along with an $8 million markup for KBR, gets billed to the taxpayer.

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

All contractors doing work overseas for the Corps of Engineers or any other U.S. government agency 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 a probe into two companies working on Iraq reconstruction that have been accused of padding their profits by claiming reimbursements for insurance coverage they never purchased.

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

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

James Dalton, chief for 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."