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US: Being Timely Was Key to Halliburton Bonuses

by David IvanovichThe Houston Chronicle
February 28th, 2006

Houston's Halliburton Co. earned nearly $100 million from its controversial no-bid contract to repair Iraq's oilfields and import fuel into that violence-torn country, Pentagon records show.

The U.S. Army Corps of Engineers -- overruling the bulk of auditors' objections about the bills submitted by Halliburton's KBR subsidiary -- awarded the company nearly $57 million in bonuses for those assignments.

Those bonuses more than doubled the profits the company was guaranteed under the cost-plus contract, Corps of Engineers figures show.

Defense Department contracts frequently include provisions offering bonuses based on a later performance review.

The Corps of Engineers awarded KBR the Restore Iraqi Oil (RIO) contract in March 2003, just before the U.S.-led invasion of Iraq.

But when the Pentagon revealed it had awarded what would become a $2.4 billion contract to Vice President Dick Cheney's former employer without seeking bids from competitors, the contract quickly came under attack.

The controversy grew hotter in December of that year, when Pentagon auditors challenged KBR bills for trucking fuel in from Kuwait to Iraq.

In all, auditors for the Defense Contract Audit Agency questioned $275 million in costs related to the contract, the company reported in a filing with the Securities and Exchange Commission last year.

Eventually, the corps agreed to reimburse all but about $9 million in costs incurred by KBR, corps spokeswoman Rhonda James said Monday in an e-mail. "Once KBR provided answers to DCAA's questions and responded fully with supporting documentation for costs, it was clear that KBR's costs were appropriately justified and KBR was reimbursed for nearly all its costs on the RIO contract," Halliburton spokeswoman Cathy Mann said.

Defending the bonuses awarded to the company, corps officials, in a prepared statement, said the company's contract with the military "placed more emphasis on timely mission accomplishment than on cost control and paperwork."

While the contracting officer did find some items "sufficiently questionable" that bonus payments to KBR were trimmed, the statement said the officer concluded "most questioned costs ... should be reimbursed."

Rep. Henry Waxman of California, the ranking Democrat on the House Government Reform Committee and a frequent critic of the Halliburton contracts, called the Defense Department's decision to reimburse these costs and award bonuses "irresponsible."

In a letter to the Republican chairman of his committee, Rep. Tom Davis of Virginia, Waxman noted that $43 million of the nearly $57 million in bonuses was awarded for Halliburton's work trucking fuel from Kuwait to Iraq.

"Ironically, Halliburton received some of its highest bonuses for projects with the most inflated costs," he wrote.

The congressman's letter pointed to the Defense Energy Support Center, which took over responsibility from KBR for transporting fuel from Kuwait to Iraq. Waxman noted KBR charged three times as much to transport the fuel and 40 times as much to cover its fees and markups than the Energy Support Center did.

But corps officials defended KBR, noting, "DESC had several months to plan and put its contract in place," while KBR "had been given an immediate requirement with no planning time."

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