Tuesday, February 28, 2006

US Army pays Halliburton despite audit concerns

US Army pays Halliburton despite audit concerns
By Will Dunham

WASHINGTON (Reuters) - The U.S. Army said on Monday it has reimbursed a subsidiary of Halliburton Co., the oil services giant formerly run by Vice President Dick Cheney, the vast majority of costs disputed by government auditors on a on a no-bid contract in Iraq.

The Army Corps of Engineers said the Army decided to reimburse Halliburton engineering and construction unit Kellogg Brown & Root all but about $9 million of $221.9 million in costs that Pentagon auditors had questioned as possibly inflated or unwarranted.

This was part of an overall $2.4 billion contract to deliver fuel and fix oil equipment in Iraq, the Army said.

The Army's reimbursement decision was first reported by the New York Times.

The Defense Contract Audit Agency had also listed $41.1 million in costs listed by the company as "unsupported" by documentation, for a total of $263 million in costs challenged by Pentagon auditors.

"In a cost reimbursement contract, the contractor is not required to perform perfectly to be entitled to reimbursement," Army Corps of Engineers spokeswoman Rhonda James said in a statement.

"Nevertheless, the contracting officer did find that some of the costs actually incurred by (Kellogg Brown & Root) were not reasonable under the circumstances and refused to reimburse them," James added.

James said that Pentagon auditors had questioned whether KBR "had always used the best business approach in executing the mission, not whether it had provided the services or paid the claimed amounts to its subcontractors."


Halliburton, run by Cheney from 1995-2000, has been under scrutiny for its contracts in Iraq, and several U.S. government agencies have looked into whether it overcharged for some work. Halliburton is the world's second-largest oil services company and the U.S. military's biggest contractor in Iraq.

Halliburton said the reimbursement validates the costs it says it incurred and charged the Army, resolving an issue pending since October 2003.

"Once all the facts were fully examined, it is clear, and now confirmed, that KBR performed this work appropriately per the client's direction and within the contract terms," Halliburton spokeswoman Cathy Mann said in a statement.

Mann said KBR had now been reimbursed for all but $3.8 million in costs under the Restore Iraqi Oil contract under which it imported fuel into Iraq from Turkey and Kuwait. The company said the only costs that were not fully reimbursed were small adjustments related to administration costs.

Halliburton has been criticized for its work in Iraq by congressional Democrats and others, including for contracts that were awarded on a "no-bid" noncompetitive basis. Halliburton has said that criticism of its work in Iraq was politically motivated.

A top U.S. Army procurement officer, Bunny Greenhouse, last year described Halliburton's deals in Iraq as "contract abuse" and said auditors had flagged more than $1 billion in potential overcharges.

Rep. Henry Waxman of California, the top Democrat on the House of Representatives Government Reform Committee, criticized the Army's decision and requested that the committee subpoena Pentagon documents relating to Halliburton.

"The Defense Department provided no adequate explanation for this irresponsible action, and it has been withholding relevant documents about its compensation determinations from the committee for almost a year," Waxman wrote in a letter to committee chairman Rep. Tom Davis, a Virginia Republican.

(Additional reporting by Deepa Babington in New York)