Army Urged to Withhold Halliburton Pay

NY Times
August 24, 2004
Army Urged to Withhold Halliburton Pay
AP

WASHINGTON (AP) -- Pentagon auditors urged the U.S. Army to start withholding millions of dollars in payments to Halliburton Co. until the company justified its bills, according to an Aug. 16 military document released Tuesday.

The Army is deliberating whether to hold back 15 percent of payments to Halliburton and its subsidiary Kellogg Brown & Root for a major troop support contract in Iraq. Federal acquisition regulations permit the sanctions on contracts that don't have properly supported billing estimates.

Various government agencies are investigating several aspects of Halliburton's work in Iraq, including allegations of kickbacks by Kuwaiti subcontractors and improper charges totaling hundreds of millions of dollars.

``It is clear to us KBR will not provide an adequate proposal until there is a consequence,'' said the Defense Contract Audit Agency in a memo to Army Field Support Command, which manages the contract. The memo was released by U.S. Rep. Henry Waxman, D-Calif., the ranking Democrat on the House Government Reform Committee.

The Army should decide whether to proceed with the penalties, estimated at $60 million, within the next two weeks, according to the Army's latest estimates.

The memo describes systemic issues with the company's cost estimates. In the case of one $4 billion order, ``each successive update continues to be significantly deficient,'' the memo said.

Halliburton reiterated Tuesday its belief that there is no legal justification to withhold payments. The company also said the DCAA is advisory and has no authority to determine whether Halliburton's systems for substantiating costs is adequate.

Halliburton spokeswoman Wendy Hall wrote in an e-mail that their system that produces proposals and estimates works well.

``We have and will continue to demonstrate this fact to our customer and the agency which does have the authority to make judgments on our systems,'' Hall wrote.

The Pentagon auditors said they tried to work with Kellogg Brown & Root staff, but have met with resistance. The company said it intends to provide supporting data during negotiations, rather than earlier in the process, the memo said.

``We believe this approach is unacceptable,'' the memo said.

Halliburton's subsidiary submitted about $13 billion in price proposals to the government between March 2003 and May 2004, according to auditing figures. An audit of $4.3 billion in specific logistics program orders found that unsupported costs made up almost half of the total amount, the memo said.

Democrats have criticized the government's ties to Halliburton, saying the firm received special treatment because of its former chief executive, Vice President Dick Cheney.

In a letter Tuesday to Defense Secretary Donald Rumsfeld, Waxman said the Pentagon hasn't reacted properly to Halliburton's poor billing practices. He urged the Defense Department to end its ``special treatment'' of the firm.

``Despite the company's record of overbilling and shoddy accounting, the Defense Department has awarded Halliburton large new contracts and repeatedly waived the application of federal procurement regulations,'' Waxman said.

The Army has postponed holding back payments on the troop support contract for several months already, according to Waxman and the Defense auditors' memo. Separately, the Army Corps of Engineers already is withholding payments on a smaller contract regarding Iraqi oil fields.