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New legislation for defense contractors calls for congressional OK

From Jennifer Rizzo, CNN National Security Producer
  • Rep. Earl Blumenauer introduces legislation targeting what he calls secret contract clauses
  • Blumenauer: Contractors would be held to "best interests of our troops and taxpayers"
  • Pentagon would have to notify Congress of assumed liability over $1 million
  • Former Army contracting official says classifying of an indemnity clause is an anomaly

Washington (CNN) -- An Oregon congressman is calling on the Defense Department to notify Congress when it accepts a substantial liability on behalf of a contractor.

Rep. Earl Blumenauer, D-Oregon, said Wednesday he has introduced the legislation in an effort to keep the United States from footing the bill for negligent contractors protected under what he called secret contract clauses with the government. He said the measure would crack down on indemnification clauses that give financial immunity to contractors, and would place increased scrutiny on government contractors operating in war zones such as Iraq and Afghanistan.

The legislation looks to keep payouts to a minimum and requires the Pentagon to notify Congress when accepting liability on behalf of a contractor that exceeds $1 million. If a company is found guilty of negligence, the legislation proposes that it not be eligible to win another contract with an indemnification clause.

"Our war contracting process does too little to ensure that contractors act with the best interests of our troops and taxpayers in mind, and we're going to change that," Blumenauer said.

Blumenauer has been pressing the Defense Department on its contracting process since July after a lawsuit was filed by 26 Oregon National Guard veterans against defense contractor Kellog, Brown, and Root.

The lawsuit alleges that KBR knowingly exposed the soldiers to a cancer causing toxic chemical at a KBR-run facility in Iraq.

Due to the classified contract clause that provides KBR financial immunity, any court fees and damages awarded as a result of the suit, including health costs, may have to be paid by the Defense Department and -- by extension, Blumenauer said --American taxpayers.

"Companies that engage in the kind of appalling negligence that has been alleged in the KBR case should not receive a bailout in exchange for their mistakes," Blumenauer said. "If you endanger our troops, you must pay the price, period."

Dina Rasor, of The Bauman & Rasor Group and a 30-year veteran of investigating defense contracts, says the real issue here is not that the clause was awarded but that it was classified, something she has never seen before. "The question I think that has not been answered by anybody is, where did this come from and are there more? And are they not telling us because it's classified?" Rasor told CNN.

Charlie Smith, a former contracting official for the Army, said it is an anomaly that such a clause would be classified. "I don't understand why anyone would classify such a clause," Smith said. "There does not appear to be a national security reason."

In a response to an inquiry by Blumenauer, Army Secretary John McHugh said that the clause pertaining to the KBR case will remain classified, but indemnification clauses are only used "in extraordinary circumstances involving unusually hazardous risks."

Apart from the contract with KBR, McHugh said, no other Army contracts awarded to companies operating in contingency situations since 2001 contain indemnification provisions.

McHugh also notes that the Army has not made any payments as a result of the clause to contractors supporting contingency operations in Iraq, Afghanistan, or elsewhere.