Update on our work in Iraq & Our Unsung Heroes

TO: All KBR employees

FROM: Andy Lane, president and CEO, KBR

SUBJECT: Update on our work in Iraq & Our Unsung Heroes

Last week I visited our KBR teams on the ground in Iraq and Kuwait, and I'd
like to take this opportunity to update you on the issues we face in the
Middle East.

The U.S. military casualties in the war are approaching 1,000. As a civilian
company, we have paid an extremely high price in human terms. We've
experienced the devastating loss of 45 of our colleagues who have died in
the Iraq war, 121 have been wounded, and we are very concerned for the two
who remain missing. We have more than 30,000 employees and contractors in
Iraq and Kuwait, and they truly are unsung heroes for the jobs they are
doing. Our convoy drivers face some of the harshest and most dangerous
conditions possible in fulfilling their mission. Our employees assigned to
military and civilian bases also face significant dangers as they are
subject to frequent hostile attacks.

When the U.S. Army decided to outsource its logistics support and we won the
Logistics Civil Augmentation Program (LOGCAP) contract in 2001, we became an
integral component of these military efforts. Several front line generals
and base commanders told me what an important job we are doing and how well
we are doing it.

Initially, the contingency contract required us to support between 25,000
and 50,000 troops at multiple bases. The scope of work changed dramatically
and today we are supporting approximately 210,000 U.S. and coalition troops
and civilians at more than 60 camps in Iraq and Kuwait.

This mission is unprecedented. Both the military and contractors are facing
a unique set of logistical and security challenges, and it is important to
remember where we began. When we took on the mission, phone communications
and power were virtually nonexistent. Employees slept in makeshift
accommodations, sometimes on abandoned building rooftops. There was no
potable water, no logistical supply transport system and virtually no other
infrastructure.

Given these conditions, KBR did everything possible to get systems up and
running in an ever-changing situation. We have repeatedly acknowledged that,
given the environment in which we operate and our ever-changing role in
support of the military operation, our systems have been stretched. Where we
have identified problems with our systems, we have taken actions to fix them
and we will continue to closely monitor and adjust them as needed.

In a recent edition of This Week, Dave Lesar described the great job KBR
employees did when they appeared before the U.S. House Committee on
Government Reform in Washington, D.C. The hearing provided KBR with the
opportunity to highlight the facts about our accomplishments in Kuwait and
Iraq and discuss the challenges we face as we manage the largest civilian
force ever assembled to support the military. I'd like to update you on
several of these issues.

ONGOING GOVERNMENT AUDITS

The government audits you read about in the newspaper are part of a lengthy,
but routine, process of working for the government, and there are several
organizations involved. Part of the oversight responsibility for our work
resides with the Defense Contract Audit Agency (DCAA). It is our customers
and the Defense Contract Management Agency (DCMA) who make final judgments
and decisions about our work.

Oversight of the public's money is important. KBR's responsibility is
supplying the best services and value at the best prices possible -- often
under incredible pressure. We know that our work will continue to be the
subject of intense scrutiny, but that doesn't make it any easier.

In the end, all we ask for is a fair assessment of KBR's performance under
the difficult and challenging circumstances of operating in a war zone. With
the services we provide in the locations we're required to operate, we are a
company faced with all the risks of war.

15% WITHHOLDING ON PAYMENTS

Our customers believe they have the right to withhold 15% of our future
billings on the LOGCAP, RIO and Project and Contracting Office (PCO) Oil
contracts until we have definitized our outstanding cost proposals. KBR
disagrees with this position, because we feel the Army is misinterpreting
the Federal Acquisition Regulation (FAR) clause that pertains to
withholding. That said, we are continuing to work with our customers to
resolve this issue.

The size and scope of our tasks in Iraq are unprecedented and the process is
complex and constantly changing. We are working with our LOGCAP client, the
Army Materiel Command (AMC), to reach a definitization schedule, and we will
continue to meet the requested timeframe. We expect to work through all
remaining issues in a cooperative manner with the AMC.

On the RIO contract, we have submitted the required definitization proposals
on our task orders, and on the PCO Oil contract we are current in the
submission of cost estimates. The Army Corps of Engineers and the PCO, our
clients, have begun withholding payments to KBR on invoices related to the
undefinitized portion of the contract. We continue to work with our clients
and the DCAA to finalize this process, so the temporary withhold can be
lifted.

DINING FACILITIES (DFACs)

During my visit to Iraq I had several meals in our DFACs, and the food and
service were excellent. Many soldiers I talked to said that the food and the
DFACs were the best they had ever experienced.

The current DFAC issue we are facing stems from a fundamental disagreement
with the DCAA on how we should be allowed to bill for food service we
provide the military in Kuwait and Iraq. The DCAA contends that the only
acceptable counting method is "boots through the door," or the number of
patrons served in the facility at every meal, even though the Army has used
a counting method comparable to KBR's on past DFAC contracts. We believe
this "boots through the door" methodology fails to take into consideration
the fact that KBR's contract with the Army required us to provide a
turn-key, fully operational dining facility for a minimum number of
personnel. The Army also wants the flexibility to move troops and to have
food almost on a "whenever and wherever" basis. We are directed to meet
their needs for flexibility, not have portion controls or limits on carry
outs, and to serve hearty meals every day.

Until this issue can be resolved, AMC is withholding an average of 19% of
KBR's DFAC payments. KBR has continued to provide the DCAA, DCMA, and AMC
with all relevant documentation regarding DFACs, and we are confident that
we will ultimately be reimbursed for the costs that have been incurred to
meet their needs.

HUMANITARIAN FUEL OVERCHARGING ALLEGATIONS

I met several LOGCAP drivers and the mechanics who support their missions at
the Theatre Transportation Center (TTC) in Kuwait. They remain very positive
about their jobs and realistic about the risks they face every day. I have
such respect for these individuals and the courage they are displaying. An
August 29, 2004 article in the Los Angeles Times by T. Christian Miller --
"The Conflict in Iraq; 'Road Warriors' Deliver the Goods; the lure of a big
payday keeps civilian truckers going despite bombs, bullets and ambushes" --
is a very good account of what our convoy drivers face daily. If you haven't
yet seen this article, you can read it at
http://www.halliburton.com/news/archive/04/article_082904.jsp.

KBR was also responsible for another major transportation mission in Iraq.
The results of a preliminary audit by the DCAA in December 2003 alleged that
KBR overcharged the government by $61 million on a humanitarian mission to
purchase and import fuel for Iraqi civilians under the RIO contract. The
Corps of Engineers has since concluded that we obtained a fair price for the
fuel; however, Department of Defense officials have referred the matter to
the agency's inspector general and an investigation is under way.

SUMMARY

As I saw first-hand last week, KBR has an incredible record of
accomplishments in Iraq. Each day we serve nearly a half million meals,
provide two million gallons of clean water, wash thousands of bundles of
laundry, dispatch nearly 700 trucks on the roads throughout Kuwait and Iraq,
and a lot more. We are managing all this in a hostile environment -- an
environment that is both difficult and dangerous, and unlike any that a
contractor has worked in before. This is a war, and despite the fact that
the U.S. Army's needs change by the minute, KBR employees continue to
deliver.

KBR has a strong history over more than 60 years of service to our country
and our country's soldiers. We do this work because it is our business, yes
-- but we also do it because as a company we can, and do, make a difference
in the soldiers' lives. I am extremely proud of the work that each and every
KBR employee is doing to support the soldiers and fulfill our LOGCAP
commitment not only in Iraq and Kuwait, but also in Afghanistan, Uzbekistan,
Djibouti and the Republic of Georgia.

This is a complex and complicated mission, and sometimes the facts get
bogged down in controversy. Rest assured, though, that we will stay the
course. We will continue to work closely with our client and with the
government to resolve any and all issues. However, we will stand up for our
position if we have to.

The story of our work in the Middle East is an important one, and I want to
make sure you have the correct information about the issues we face. I am
committed to keeping you informed about the news surrounding our company and
I hope you will join me in supporting our unsung heroes who are
demonstrating unparalleled dedication and hard work during these challenging
times.

As I look back and think about the bullet-ridden truck cabs and the job our
mechanics are doing to repair these vehicles, and the employees who have
reclaimed over $370 million in ammunition through the ammunition retrograde
operation, it is clear to me. When I flew in the Black Hawk helicopter --
wearing my flak jacket and helmet -- to three very remote bases where our
employees live and work, and where mortars landed just hours after we left,
it was clear to me. As I listened to the two-hour exchange of hostile fire
during the night in the Baghdad base camp where many of our employees live,
it was clear to me. When we left the "Green Zone" and traveled at high risk
through Baghdad's "Red Zone" to attend meetings, it was clear to me. While
we are not war fighters, we are clearly a civil company at war. Our
employees who live this reality every day need our full support. They all
have my respect and they truly are unsung heroes.

If you are interested in reading more about our work in the Middle East, I
encourage you to visit the NEWS section of www.halliburton.com, which
includes press releases and media statements about our work in Iraq.

For details about the government committee hearings mentioned earlier,
including the testimonies presented by KBR employees, go to:
http://www.halliburton.com/news/archive/2004/kbrnws_072204.jsp.

Best regards,

Andy

Thank you for sharing that with your safe and comfy fellow Americans on the homefront.

Some visible support from above:

Building a Better Iraq

by Master Sgt. Chuck Roberts
opening photo by Tech. Sgt. Keith Brown

In an effort to bring peace and stability to Iraq, Airmen at Balad Air Base, Iraq, consistently face mortar and rocket attacks from an enemy focused on seeing them fail.

Maj. Gary Hankins, a psychologist who was at Balad in April, said Airmen at the base have seen some alarming things. On Good Friday more than 20 mortars and rockets were launched at the base, one of them killing Airman 1st Class Antoine J. Holt after striking his tent.

The major said his job was to help make sense of it all. But for him, too, “it was worse than I expected. This is all a new game to most of us. This is probably as bad as it gets. But on the other hand, I don’t think I’ve ever felt more needed or that I was making more of a difference. You’re just right in the middle of it,” said the weary and worn-looking major as he sat on a hospital cot late one night in the Contingency Aeromedical Staging Facility.

His sentiments are prevalent among the nearly 2,000 Airmen deployed as part of the 332nd Air Expeditionary Wing at Balad, located approximately 45 miles north of Baghdad. In February, the former Iraqi air base became the Air Force’s headquarters in Iraq, as well as a major hub for receiving and delivering supplies in theater. The base is home to HH-60G Pave Hawk helicopters, F-16 Fighting Falcons, MQ-1 Predator, Desert Hawk and a constant flow of strategic and tactical airlift aircraft, including C-130s, C-17s, C-5s and civil cargo carriers.

Airmen are collocated with more than 20,000 Soldiers assigned to the 13th Corps Support Command responsible for the operation of Logistical Support Area Anaconda, the largest Army supply center in Iraq. Many, such as air traffic controllers and firefighters, share office space with their Army counterparts while others support the Army by providing security escorts for daily convoys delivering supplies to outlying military posts. Air Force transportation specialists man the convoys, to include the gun trucks used to protect military and civilian truckers.

Such cooperation has been likened to the Balad wing’s historical lineage — the Tuskegee Airmen. They were the first African-American U.S. military aviators in 1942 with the 332nd Fighter Group.

The Tuskegee Airmen also saw duty in hot climates such as Balad, where Airmen toil around the clock in temperatures averaging well above 100 degrees as they build base infrastructure, receive air cargo and launch aircraft within the drab confines of this former Iraqi air base. Now, at any moment, Airmen are subject to attack. In June, two Soldiers died during a daytime attack. Many Airmen such as Staff Sgt. Perry Colburn and Senior Airman Aubrey Fagan, have near-miss stories.

Fagan’s luck
On April 1, Airman Fagan had just refueled a C-5 Galaxy and was driving back to his work site when a rocket landed in front of his truck causing gravel to strike the windshield. He locked the brakes but skidded onto the rocket, embedding it halfway into the ground and bending its tail, but not setting it off.

In a previous incident, Airman Fagan was in a truck when two rockets exploded about 100 yards away. They were close enough for the percussion effect to feel like “someone ran up and pressed my chest in,” said Sergeant Colburn, the truck’s driver. All eight passengers and the truck were unscathed. Sergeant Colburn put it down as “Fagan’s luck.”

“See, that’s why I hug you every morning. You’re my lucky charm,” the sergeant joked to Airman Fagan about the ritual he conducts each morning.

Capt. Kristen Snow, chief of flight safety, recalled watching a plume of smoke rise from a rocket explosion about 300 feet away from the exact spot she had just been.

She was stunned by such attacks when she first arrived, but soon grew accustomed to them.

“You realize there’s absolutely nothing you can do about it, so you get a thick skin and go about your business.” As for her near miss, and many others she pointed out, “I just hope those continue,” she said shortly before her deployment ended in June.

On goes the mission
Despite enemy attacks, Airmen go about their business, such as supporting an aeromedical aircraft ready to depart with patients, said Col. Rebecca Garcia, commander of the 332nd Expeditionary Maintenance Group. She pointed out the entry point to the flightline where splattered scars of a mortar attack penetrated the door of a “follow-me” truck but left the driver unharmed. Doing business in alarm red isn’t something one normally does back home during an inspection, she said. But the Air Force is in new territory.

“The enemy changes the rules, we have to change the rules,” Colonel Garcia said.

The colonel said for crews who provide basic “gas-and-go” maintenance each week to about 220 aircraft there’s little time to worry about the next attack.

From March through May, approximately 70 members of the flight moved nearly 68,000 passengers and 90 tons of cargo ranging from “anything and everything,” said Capt. Zack Jensen, flight commander.

He said the pace can get as hot as the temperature when several jets land almost simultaneously after being forced to remain in a holding pattern because of an attack. But the job gets done, he added.

Attacks on the base continue as modernization presses on, including transforming from a tent city to trailers.

At the root of the base upgrade is Maj. Eric Higgs, officer in charge of engineering and installations. His small crew of 18 Air National Guardsmen is literally laying the groundwork for a better Balad through the miles of copper and fiber cables they’ve installed to improve telephone and computer service.

“If you want to feel part of something, Balad is the place to be,” he said. “You know you’re really in the deep here. We’re making history. We’re doing something that hasn’t been done historically.”

Fighting back
Balad received more than 50 percent of the attacks at airfields in the country, according to a wing mission brief. Balad, however, is fighting back.

Doing so includes Airman 1st Class Christopher Perry, a 21-year-old sensor operator who arrived at Balad direct from technical school. His job is to sit beside the pilot at the ground control station and operate sensors for the Predator that can deliver video of the enemy below.

The Point Pleasant, N.J., native said it’s “amazing to look down and see the bad guys” launching an attack on the base.

The Predator crew has successfully launched its Hellfire missiles against enemy targets, said Maj. Larry Gurgainous, 46th Expeditionary Reconnaissance Squadron commander. Crews have also guided quick reaction forces to the enemy.

Base defense missions such as these are new for the Predator, which was originally designed for intelligence, reconnaissance and surveillance gathering on flights as long as 20 hours.

“We’re moving closer into combat than anyone expected,” said Major Gurgainous, a C-130 pilot by trade. And in doing so, the Predator performed better than expected while logging records for both sorties and hours flown, he said.

That keeps Staff Sgt. David Miranda, a Predator dedicated crew chief, hard at work. But he doesn’t mind, knowing his work is paying huge dividends.

“If we can let them [ground troops] know what’s going on, that save lives,” he said.

So does the Desert Hawk, said Staff Sgt. Jason McQuarrie of the pint-sized, 7-pound Styrofoam aircraft launched with a bungee cord. Once airborne it flies low and slow around the base and provides live imagery to spot terrorists before or after they launch a mortar attack. It can also provide reconnaissance for an Army patrol or direct an Army team in the middle of a firefight, said Sergeant McQuarrie, noncommissioned officer in charge of the Force Protection Aerial Surveillance System, known as Desert Hawk.

During a Desert Hawk demonstration flight, an F-16 roared overhead. The jet is from the 332nd Expeditionary Fighter Squadron that includes Air National Guard units from Colorado, Montana and New Mexico. The F-16 is another airframe that, in addition to its primary role of providing close air support, has been used for gathering intelligence, surveillance and reconnaissance.

For 1st Lt. Teneyck Latourette, an F-16 pilot, it can mean getting direct feedback from the customer. That’s been the case with Soldiers whose convoy the lieutenant flew over in the morning. Some recognized his flight suit at the dinner table and asked, “Was that you I saw overhead today? Thanks for looking out for us.”

Giving hope
In addition to giving fight to the enemy, Airmen know it’s equally important to give hope to the majority of Iraqis who seek peace for themselves and their nation.

“We’re here to win the hearts and minds of the Iraqi people,” said Tech. Sgt. Noël York, noncommissioned officer of the Tuskegee Chapel, easily identified by a steeple with artillery casings suspended by parachute cord in place of bells. “We are all involved in this,” the 35 year old said.

The chapel was instrumental in donating school supplies and toys to a local village. Additionally, the base spent approximately $50,000 renovating a school in the village, and more such involvement is on the agenda, said Lt. Col. James Mitnik, chief of plans and programs.

“It tells them you care about them instead of coming in and conquering. That’s all we’re trying to do — help them,” the colonel said.

~*~

http://www.af.mil/news/airman/0904/iraq.shtml

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