Defense stocks gain despite testimony

Defense stocks gain despite testimony

	Published : Wed, 31 Jan 2007 23:02 By : Agencies Print this Story

WASHINGTON (AFX) - Defense stocks made strong gains Wednesday despite White House and Pentagon officials testifying before a U.S. Senate committee examining flawed contracting services.

Stocks rallied after L-3 Communications Holdings Inc. reported a 15 percent jump in fourth-quarter profit and Boeing Co. reported it more than doubled its fourth-quarter earnings, largely due to its robust commercial airplane and defense system business. Boeing shares gained $3.46, to 4 percent, to $89.49 on the New York Stock Exchange.

On Capitol Hill, the Senate Armed Services committee heard testimony from Paul Dennett, administrator for the Office of Federal Procurement Policy for the Office of Management and Budget, and Shay Assad, director of Defense Procurement and Acquisition Policy for the Pentagon.

Since winning back Congress, Democrats have signaled plans to intensify oversight of Defense Department contracting services and billions of dollars spent in Iraq.

Since the start of the U.S. war on terror, defense contractors on the ground like Houston-based KBR Inc., which provides food and shelter to U.S. troops in Iraq and Afghanistan and Houston-based Halliburton Inc., which provides engineering and energy services, have been linked to allegations of fraud and abuse.

The Government Accountability Office has launched several investigations into contracting practices by the Pentagon and defense firms.

The amounts of money involved are attention-getting. For example, the Army spent roughly $15.4 billion on its largest contract to provide food, shelter and other nonmilitary needs between 2001 and 2004, according to a report released in December by the watchdog agency.

Hundreds of U.S. companies are involved in the war effort. The Army contracts with well-known defense contractors, such as Northrop Grumman Corp. and General Dynamics Corp., among others, to provide communications, body armor, weapons systems and intelligence in Iraq and elsewhere.

In a report released in October on the status of Iraq reconstruction projects, the GAO identified contractors on the ground in Iraq, including Flour Corp., hired for electric generation power plant construction; Raytheon Co., contracted to install communications systems; DaimlerChrysler AG, hired to provide armored vehicles, and DynCorp International, hired for constructing and training at police training facility. None of those companies were identified as targets of the investigations.

Also among those testified were Marcia Madsen, partner at Mayer, Brown, Rowe and Maw, a Washington law firm which specializes in government contracts and litigation; consultant Jonathan Etherton, former Aerospace Industries Association legislative affairs official and founder of Etherton & Associates; and deputy general counsel for acquisition of the Air Force James A. 'Ty' Hughes.