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Iraq: Report Finds Halliburton Violated Contracting Rules

by Seth BorensteinKnight Ridder Washington Bureau
March 11th, 2004

Washington - Halliburton, the big contractor that's won the lion's share of government contracts to rebuild Iraq, significantly and systematically violated federal contracting rules by providing inaccurate and incomplete information about its own costs, according to a special report by Defense Department auditors.

Yet 16 days after that Dec. 31 "flash" report and after a second warning by Pentagon auditors, the Army Corps of Engineers gave Halliburton, formerly headed by Vice President Dick Cheney, a new $1.2 billion contract.

An eight-page Democratic memo summarizing the auditors' report and criticizing Halliburton's cost estimates was prepared before a congressional hearing Thursday on $9 billion in federal contracts in Iraq. So far, Halliburton has received $5.8 billion in contracts. The memo was written by Rep. Henry Waxman of California, the senior Democrat on the House Government Reform Committee, which oversees government contracting.

The suggestion that a company with ties to the Bush administration may have profited excessively from the war in Iraq could compound the administration's growing difficulties over the war, which include whether Cheney and other top officials exaggerated the threat Iraq posed to marshal support for the war.

The Pentagon audit "depicts a situation where costs are virtually uncontrolled and Halliburton can overcharge the taxpayer by phenomenal sums," Waxman wrote. "Given our nation's mounting debt and the escalating costs in Iraq, all members of Congress should be extraordinarily concerned about this new evidence of waste, fraud and abuse in contracting in Iraq."

Halliburton spokeswoman Wendy Hall responded Wednesday that "We are disappointed, once again, that selective portions of audit reports have been released publicly even before KBR (Kellogg Brown & Root, a subsidiary of Halliburton) and the Army have made final reviews of the information.

Releases of partial reports are inappropriate because the true and complete story cannot be conveyed. In fact, the release of these reports could violate established federal policy."

In its own internal investigation, released earlier this year, the Houston-based oil-and-engineering conglomerate found significant problems with its cost estimates.

A Pentagon spokeswoman, who spoke on condition of anonymity, said senior Defense Department officials, who'll testify Thursday, hadn't had a chance to review Waxman's memo so it would be premature to comment on its contents.

At Thursday's hearing, House Democrats will try to make public the December 31 "flash" report by the Defense Contract Audit Agency, but that requires a majority of votes on the Republican-controlled oversight committee.

Waxman quotes the DCAA report as saying there were "significant deficiencies" in the way Halliburton estimated costs. A $2.7 billion proposal from Halliburton "did not contain current, accurate and complete data regarding subcontractor costs," according to Waxman's excerpt of the DCAA report.

Halliburton, according to Waxman's summary, told the government it would cost $1 billion to provide food for U.S. troops but based that figure on two subcontracts it already had canceled. Hall said Halliburton had told the government of the cancellations.

Waxman wrote that the DCAA concluded that Halliburton violated regulations on federal acquisitions. He said, "According to the Flash Report, among other violations, Halliburton (1) failed to submit cost and pricing data; (2) failed to provide data showing the degree of competition and reasonableness of price for subcontracts and procurements; and (3) failed to analyze the prices and costs of subcontractors. DCAA further noted that Halliburton did not even comply with its own Cost Estimating Manual, but provided 'no valid reason for deviating from the manual.' "

When the DCAA gave Halliburton a chance to respond, the company told the agency the problem wasn't systemic but was a unique situation, according to Waxman's memo. However, Waxman wrote that the DCAA dismissed that explanation, saying it was "not a onetime occurrence; it is systemic."

Less than two weeks after the DCAA flash report, auditors wrote to the Army Corps of Engineers, saying that Halliburton's systemic problems "bring into question (Halliburton's) ability to consistently produce well-supported proposals that are acceptable as a basis for
negotiation of fair and reasonable prices." The auditors asked the corps to consult with them before giving Halliburton another contract, but the corps ignored the request and on Jan. 16 gave Halliburton a $1.2 billion contract to restore oil services to southern Iraq, according to Waxman.

Halliburton already is under scrutiny for overcharging the government for supplying gasoline to U.S. military personnel and others in Iraq. Waxman on Wednesday revealed new information showing that Halliburton was charging twice as much for a gallon of gas as the Defense Department's own energy office.

Halliburton charged the U.S. government $2.64 a gallon to buy and transport oil from Kuwait to Iraq, using an inexperienced politically connected Kuwaiti subcontractor. The Defense Department's Energy Support Center had been doing a similar job at $1.32 per gallon, according to data that office gave Waxman's office.

Defense Department officials told Waxman's office that Halliburton charged the U.S. government $1.21 per gallon just to move the gas, compared with an average of 36 cents when the Defense Department's own office did the work.

Hall contends that Halliburton "delivered fuel to Iraq at the best value, the best price and the best terms, and in ways completely consistent with government procurement policies."



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