Friday, July 08, 2005

Army gives $5 bln of work to Halliburton


Army gives $5 bln of work to Halliburton

By Sue Pleming

WASHINGTON (Reuters) - The U.S. military has signed on Halliburton to do nearly $5 billion in new work in Iraq under a giant logistics contract that has so far earned the Texas-based firm $9.1 billion, the Army said on Wednesday.

Linda Theis, a spokeswoman for U.S. Army Field Support Command in Rock Island, Illinois, said the military signed the work order with Halliburton unit Kellogg Brown and Root in May.

The new deal, worth $4.97 billion over the next year, was not made public when it was signed because the Army did not consider such an announcement necessary, she said.

"We did not announce this task order as this is really not something we ever really thought about doing," said Theis.

Halliburton, which was run by Vice President Dick Cheney from 1995-2000, has been under scrutiny for its contracts in Iraq and several U.S. government agencies are looking into whether it overcharged for some work.

A Halliburton spokeswoman said the new spending package was approved by the Army after the company submitted estimated costs for the year based on services requested.

The $4.97 billion figure represented the maximum under the contract, and the actual amount could be lower since the Army doled out the work on an incremental basis, she said.

The new contract is about $1 billion more than the company earned under last year's services contract.

In March, a former KBR employee and a Kuwaiti citizen were indicted for defrauding the U.S. government of more than $3.5 million by inflating the cost of fuel tankers.

The new work order, called Task Order 89, is valid until April 30, 2006, and went ahead despite critical military audits released last week by Democratic opponents of KBR's Iraq work.

A top U.S. Army procurement official said last week Halliburton's deals in Iraq were the worst example of contract abuse she had ever seen, a claim KBR strongly rejected as "political rhetoric."

KBR was awarded the logistical contract with the military in December 2001, covering tasks from feeding U.S. troops to delivering mail, doing laundry and building barracks.

U.S. Senate critics of Halliburton were quick to denounce the new deal.

"At this point, why don't we just hand Halliburton the keys to the U.S. Treasury and tell them to turn off the lights when they are done," Democratic Senator Frank Lautenberg said in a statement.


Called LOGCAP, KBR had by May 31 been paid $9.1 billion under the deal, which has nine option years that have been renewed three times. They are up for renewal each December.

Of this amount, $8.3 billion was for work in Iraq and the remainder for Afghanistan and elsewhere. Money obligated for future work amounted to $11.4 billion, said Theis, pointing out not all of this money would necessarily be spent.

The Pentagon has been looking into whether to contract out some services done by KBR, but Theis said she had not heard of any decisions to make changes.

Halliburton has received bonuses for some of its work. Theis said a decision on possible further bonuses will likely be announced this month.

Much of Halliburton's work for the U.S. military is on a cost-plus basis, which means the company can earn up to 2 percent extra depending on its performance.

Halliburton shares slipped 1.5 percent, or 75 cents, to $48.87 per share on the New York Stock Exchange, tracking the decline in the energy services sector on Wednesday.

Halliburton shares have rallied 13 percent since the beginning of June, bolstered by high crude oil prices.

Despite the drop in the stock price, analysts said the latest news was positive for the company and indicated "the government has no issue with Halliburton's performance," said Kurt Hallead, analyst with RBC Capital Markets.

(Additional reporting by Matt Daily in Houston)