Washington (CNN) - The U.S. Army is under fire for reversing a decision to have three companies compete for more than $500 million worth of work in Iraq, and instead keeping it under an existing contract without any bidding.
The $568 million contract for support work in Iraq stayed with contracting giant KBR under the existing sole-source contract - known as Logistics Civil Augmentation Program III (LOGCAP III) - after the Army initially requested bids from KBR and its main competitors, Fluor Intercontinental and DynCorp International, under a competitive contract system known as LOGCAP IV.
The contract work, covering everything from cleaning laundry to preparing food and providing fuel for troops and contractors in Iraq, would be done between September 1, 2010 and December 31, 2011, as the U.S. military begins a massive draw down of troops in Iraq.
KBR won the LOGCAP III contract under competitive bidding in 2001 and military commanders worried about the effects of changing an already existing set-up to another company's set-up.
"Theater commanders expressed concern about transitioning the base life support services to LOGCAP IV during the time of massive draw-down operations in Iraq," said Daniel Carlson, a spokesman for the Army's Sustainment Command, which manages the LOGCAP contracts.
"The decision to continue with KBR on LOGCAP III was based on input from theater commanders, the anticipated cost of the transition and contractor performance. We remain proud of our work and we are humbled to support our troops," said Mark Williams, president of KBR Infrastructure, Government and Power.
An industry official who did not want to be named to prevent any recourse against his company by the military said "We were disappointed in the decision and frankly thought the new contracting system made a fair game for all of the companies in this industry."
The bi-partisan heads of the Senate Homeland Security subcommittee, which oversees contracting for the Department of Defense, wrote to Defense Secretary Robert Gates last week about the Army's decision.
"Given the significant progress made in the last year toward increased competition, oversight and accountability... we are dismayed by the prospect of the Defense Department forgoing these potential gains," Sens. Claire McCaskill, D-Missouri, and Scott Brown, R-Massachusetts, said in the letter dated April 30.
Carlson said the Army's Sustainment Command "concluded that continuing LOGCAP III support provided the best solution for our men and women in uniform as well as the U.S. taxpayers.
"Operational requirements, cost, and contractor performance were key to our decision," Carlson said in an email to CNN.
He said the Army briefed members of Congress about the decision last week.
Pentagon press secretary Geoff Morrell said the senators' letter to Gates was forwarded to the Army for a response.
The Army says keeping the contract with KBR would save as much as $77 million that it would not be able to recoup if another company transitioned in and took over the support process.
Contracting industry officials were surprised by the actions.
Keith Stephens of Fluor Intercontinental said his company offered a "competitive bid for the work in Iraq with an achievable transition schedule designed to produce significant savings for taxpayers."
He said the Army has not yet spoken to the company about the decision, but their bidding paperwork was returned to them last week, indicating they did not win the contract.
The other company that put in a bid, DynCorp, declined to comment when asked by CNN.
The senators' letter to Gates also expressed concern about KBR's recent legal problems surrounding its work with the military.
"We are particularly concerned about the Army's continued reliance on LOGCAP III in light of the Justice Department's recent decision to bring a civil action against KBR for improper billing of security services under LOGCAP III," according to the letter.
The Justice Department brought the fraud suit against KBR April 10, alleging the company improperly charged the government for $103.4 million for unauthorized security services in Iraq in 2007 and 2008.
Additionally, the Justice Department announced last week it had joined a lawsuit against KBR alleging that KBR transportation department employees received unlawful kickbacks from two freight forwarders doing business with KBR.
"We are aware of Department of Justice announced actions against KBR. The government and KBR have made significant improvements in operations and oversight of LOGCAP III and we have safeguards in place to protect the government's interest," Carlson said.
Since 2001, the LOGCAP III program has given KBR $35.7 billion worth of work, according to Army statistics.
Fluor and DynCorp beat out KBR under a LOGCAP IV contract in 2007 for other support services in Iraq. That contract has so far been worth $2.4 billion.