US: Army Resolves a Major Billing Dispute with Halliburton

WASHINGTON - The U.S. Army will pay $1.8 billion to Kellogg Brown & Root, a subsidiary of Halliburton Co., for dining services in Iraq and Kuwait but retain a portion of payments suspended during a long-running billing dispute.

Army Field Support Command said Tuesday it had reached a negotiated agreement with KBR and the Army to resolve a payment dispute that has been in contention since December 2003. The deal covers billing questions surrounding dining services for the initial months of the U.S. Operation Iraqi Freedom invasion of Iraq.

Under the arrangement, the Army will keep $55 million out of about $200 million in payments to KBR that had been suspended while billing questions were resolved.

"This negotiated agreement resolves a withholding of payment issue between KBR and the Army," the Army said in a press release.

Halliburton said the agreement was good news for the company and its suppliers. It said the issue stemmed from "interpretative differences" in billing practices.

"As we have said before, we have withheld amounts from our subcontractors based on the government's actions and we do not expect any negative financial impact from this settlement as a result," said Bruce Stanski, senior vice president of KBR's government and infrastructure division, in a statement.

KBR and the Army also agreed to convert portions of 14 affected contract components, called task orders, to "firm, fixed-price" contract types, the Army said. Previously, the contracts were awarded on a cost plus award fee basis, which guarantees the company a profit above its cost of providing services.

The Army said the settlement stemmed from a cost analysis team established in October 2004. Army acquisition specialists and independent contractor pricing specialists reviewed the contracts and helped negotiate a settlement.

"This agreement does not affect the government's right to recover further funds as the result of current and/or future investigations," the Army said.

Separately, the Army released the results of its latest award fee board, awarding KBR $8 million in interim award fees for a broad range of troop support services contracted a cost-plus-fee basis. The award fee amounts are not yet final and represent half the available fee pool.

In its press release Tuesday, Houston-based Halliburton said it had reached definitive agreements on $10.5 billion in Army troop support contracts besides the agreement with the Army on the dining services issues.

Halliburton shares fell 45 cents, 1 percent, to close at $44.45 Tuesday on the New York Stock Exchange, near their 52-week high of $45.29.

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