Operation Iraqi free ride: thanks to administration stonewalling, only one crooked contractor in Iraq has been brought to justice. And there's even more to that story

Washington Monthly, July-August, 2006 by Dean Starkman

Last March, Custer Battles, a McLean, Virginia-based security contractor run by Scott Custer, a former Army Ranger, and Mike Battles, an occasional Fox News commentator and one-time Republican candidate for Congress, was found by a federal jury to have defrauded the government of $3 million in contracting services in Iraq. Its crime was brought to light by whistleblowers within the company. Among many other tricks, the firm had issued fake invoices and created sham companies to fool its employer into paying for services not provided. Sometimes, Custer Battles was less devious: In one case, according to the trial testimony of retired Brigadier General Hugh Tant III, the company was hired to provide trucks to the military, but the vehicles it procured didn't run, and had to be towed from the site. When confronted, Mike Battles replied: "You asked for trucks ... it is immaterial whether the trucks were operational." Tant, who oversaw the contract, called Custer Battles's work "probably the worst I've seen in my 30 years in the army."

Custer Battles is the only CPA-era whistieblower case to go to trial, but a slew of evidence has now emerged pointing to widespread waste, fraud, abuse, and negligence in the awarding and oversight of Iraq reconstruction contracts. Smart W. Bowen Jr., the Special Inspector General for Iraq Reconstruction, wrote in a report that the authority's "less than adequate" financial controls left "no assurance" that $8.8 billion in seized Iraqi funds was used properly. But the Bush administration and its allies have blocked most other high-profile efforts to gather more information about further instances of abuse. The administration has invoked an obscure part of the False Claims Act to prevent all but one of more than 50 whistleblower suits brought by employees of U.S. contractors in Iraq from moving forward to trial. And the Republican Congress has held only cursory hearings on the contracting process.

That essentially means that we'll get little new information on Iraq's reconstruction-contracting disaster unless Congress changes hands in November. But Custer Battles itself may not be so lucky. This summer will likely see the start of the second phase of the company's trial, which will focus on allegations that, on a contract to provide security for Baghdad International Airport (BIAP), Custer Battles short-changed the Coalition Provisional Authority (CPA) by diverting airport guards to other jobs. Whatever the result of that trial, an investigation by The Washington Monthly into Custer Battles's handling of the airport job makes clear that the firm played by its own rules--quickly setting out to expand the size of the area under its control, and resisting, with striking success, attempts by CPA and military authorities to hold it accountable. It also suggests that the chronically disorganized environment in which Custer Battles was operating exacerbated the problems. In this sense, the story of Custer Battles and the Baghdad International Airport offers a window onto the broader shortcomings of a chaotic and failed occupation.

Terminal neglect

In the weeks after the fall of Saddam Hussein, reopening the airport quickly emerged as a priority for the nascent CPA. A working airport would be crucial in encouraging foreign trade and investment, and in helping to get the Iraqi economy back on its feet. In June, CPA officials issued a Request for Proposal for airport security, with bids due just three days later. According to the request, the job involved guarding a 700-acre complex of terminals, administrative buildings, residences and more, while fending off "disruptive elements" that continued to "prey upon coalition forces in and around Baghdad." Four days after the bids were due, Mike Battles received an email from Scott Custer: "We just won BIAP. CALL ME ASAP."

According to records obtained by The Washington Monthly, the hasty award was made by a committee of five "select" CPA members, headed by Franklin Hatfield, a senior Department of Transportation (DOT) official who was reporting back to the office of Transportation Secretary Norman Mineta in Washington, D.C. The committee also included Vincent Taylor, an assistant DOT secretary. A few days later, Custer Battles signed a "letter contract" for $16.8 million with Hatfield. In an interview, Taylor says he was presented with the list of candidates and doesn't know how Custer Battles came to be on it. In considering bids, he says, he was acting as an Army officer, not a DOT official, and at the time was heading three battalions with a mission to "do anything and everything to get that city of Baghdad" up and running, including opening the airport quickly. Speed, he says, was the key factor in choosing Custer Battles.

But from the start there were questions about Custer Battles's qualifications. "They had never hired a security guard in their lives," says Alan Grayson, a lawyer who is suing Custer Battles on behalf of two whistleblowers. "They had no equipment, no revenues, no personnel, no office, no history--no nothing." David Douglass, Custer Battles's lawyer, says the firm's principals had experience providing security for relief organizations and performing other essential logistical tasks in post-conflict environments, including Afghanistan. But Douglas acknowledges that Custer Battles as a firm had never handled a job of anything like this size and complexity.