...Initially, Logcap III called for KBR to support 25,000 troops in a theater of war. As military men say, no war plan survives contact with the enemy, and today the company is supporting 211,000 soldiers and personnel in Iraq and Kuwait. In the course of ramping up such an enormous effort, there are bound to be difficulties. But KBR has done a tremendous job of responding quickly to changing circumstances. Some of the biggest snafus have occurred in accounting at both KBR and the Pentagon, and even then the company has blown the whistle on itself.

KBR's other major contract in Iraq was Restore Iraqi Oil, a program to get the country's petroleum flowing quickly to finance reconstruction. That contract was awarded without bidding, and with good reason. The company was simply the only one capable of handling all of the possible challenges, including oil-well fires and pipeline breakdowns. And the Pentagon's confidence has been rewarded: KBR restored production to pre-war levels three months ahead of schedule.

Given the risky work and the firestorm of criticism from Democrats, one would think that Halliburton was making profit hand over fist in Iraq. Sadly for the company's shareholders, that is not the case. Profit from Logcap would come mostly from an "award fee," granted by the military on the basis of how well the company contains costs, and which may not exceed 2% of costs. Likewise, the profit potential on the oil contract is strictly limited and will probably end up between 1% and 3%, compared to the usual margin of 15% for private oil industry services. Halliburton is so underwhelmed by the returns on this government contracting that it is trying to spin off its KBR subsidiary...