WASHINGTON - The Pentagon has all but abandoned hope that Halliburton Co. will be able to fully account for all expenses associated with supporting U.S. troops in Iraq and is considering an accounting armistice.
Rather than continue a months-long battle with the Houston-based contractor over hundreds of millions of dollars worth of inadequately documented expenses, the Army now is trying to negotiate a settlement.
Such a deal would close the books on billing disputes from two assignments under its contracts - currently valued at $4.8 billion - to build camps, serve up food, deliver mail and drive trucks on Iraq's mine-laden highways.
Just two months ago, the Army was threatening to withhold 15 percent, or about $60 million a month, in reimbursements from Halliburton until the company provided the necessary documentation.
Last summer, the Field Support Command appeared poised to begin withholding payments, at the urging of the Defense Contract Audit Agency, only to back off at the last minute.
Just how much remains at issue was not immediately clear.
Back in August, the Defense Contract Audit Agency identified $1.8 billion in unsupported costs from the larger of those two assignments.
To help determine what would be reasonable costs for operating in a war zone, the Pentagon has hired Vienna, Va.-based Resource Consultants to help evaluate Halliburton's billings. Itself a military contractor, Resource Consultants was hired by the Army two years ago to help recruit new soldiers.
Army Field Support Command spokesman Dan Carlson said the parties hope to have the issues fully resolved by March.
"This is good news," Halliburton spokeswoman Wendy Hall said. "We're going to get resolution."
The settlement could also help end months of bad publicity and questions about what it will be paid.
Halliburton's much-discussed accounting woes have given fodder to the company's critics, who have repeatedly questioned the military contracts awarded to Vice President Dick Cheney's former employer.
Rep. Henry Waxman, D-Calif., described the settlement effort as a "shameless disregard for the taxpayers' interest.
"The Bush Administration is removing experienced government auditors, who have questioned billions in unsubstantiated charges, from the case and transferring their responsibilities to a new set of private consultants," Waxman said. "The result will be an enormous windfall for Halliburton and hundreds of millions of dollars in overcharges for the taxpayer."
Under its $8.2 billion, 10-year logistics contract with the Army, KBR has had to scramble to meet the Army's every contingency in a place that is still very much a war zone.
But why would those difficulties affect the paperwork?
Halliburton spokeswoman Hall said the documentation rules that might be appropriate for a manufacturing plant making rifles don't necessarily translate when supporting an army on the move.
The company has provided documentation, even for assignments performed on the hurry-up, including handwritten notes and logs of voice mail communications, Hall said.
But the existing documentation, Hall said, doesn't always meet what she called the "two-pound test," a bunch of copies and bundles and binders of documents.
That kind of paperwork might be expected from a "procurement process that normally takes 45 days," Hall said. But KBR at times must execute assignments in minutes.
"We have to make decisions quickly."
Military planners had raised concerns about what such a withholding might mean for the company's ability to serve troops in the field.
Rather than continue wrangling, the Army and the company are trying to reach an equitable solution.
Halliburton has long argued the 15 percent rule does not apply to its contracts, and the company has said it will take legal action if the Pentagon proceeds with such a move.
The company has never been subjected to a 15 percent withholding, Hall said.
Army officials point out the settlement negotiations cover only the two contracts.
Halliburton had also long promised to withhold payment from its subcontractors if the Army followed through on threats to withhold 15 percent.
In fact, one of Halliburton's largest subcontractors, Kuwait-based La Nouvelle General Trading & Construction Co., says the company did just that.
In a federal lawsuit filed earlier this month in Virginia, La Nouvelle, which has served meals, laundered clothes and built a camp for KBR, said the company halted payments back in May, after receiving a notice from Pentagon auditors that contract costs could be suspended or disapproved.
La Nouvelle is seeking at least $224 million in damages.