US: Pentagon Audit Finds Halliburton Billing Problems for Iraq Work

WASHINGTON - Leading U.S. defense contractor Halliburton (HAL.N: Quote , Profile , Research ) > may have overcharged the U.S. government by more than $100 million under a no-bid oil deal in Iraq, said a military audit released by a Democratic lawmaker on Monday.

The Defense Contract Audit Agency (DCAA) audit, parts of which were released by California Democrat Rep. Henry Waxman on his Web site www.democrats.reform.house.gov/, questioned $108 million in costs by Texas-based Halliburton unit Kellogg Brown and Root for delivery of fuel to civilians in Iraq in 2003 and 2004.

"We recommend contract price negotiations not be concluded until KBR provides the schedule of actual costs," said the DCAA audit, dated Oct. 8, 2004.

Halliburton defended its work in Iraq and said it had delivered fuel for the best possible price.

"The report fails to take into account the fact that KBR performed an urgent mission at the Army's request and that the mission took place in a war-time environment," said Halliburton spokeswoman Wendy Hall in an e-mailed reply to questions.

Halliburton, which was run by Vice President Dick Cheney until he joined the 2000 race for the White House, is the U.S. military's biggest contractor in Iraq and has the potential to earn up to $18 billion in business there, according to government estimates.

Hall said the company was cooperating fully with auditors and had addressed issues raised by its client.

"We will continue to work with the Army to prove, once and for all, that KBR delivered these vital services for the Iraqi people at a fair and reasonable cost given the circumstances," said Hall.

A Pentagon spokeswoman told Reuters she was looking into the issue.

A draft DCAA audit released in December 2003 found KBR might have overcharged the United States about $61 million to bring in fuel to Iraq until Sept. 2003.

The October 2004 audit looked at work done under "Task Order 5," a work order under which Halliburton charged $875 million to import fuel into Iraq. This was one of five task orders relating to fuel imports to Iraq, which despite being oil rich suffered from a shortage of refined products.

The audit also questioned costs charged by KBR subcontractor, Kuwaiti company Altanmia, and said the Texas-based firm failed to negotiate better prices.

"Our audit found purchase orders and procurement files related to the Kuwaiti supplier did not contain data to support the reasonableness of the negotiated purchase orders," the auditors said in the report.

BUSH LETTER

The report said it recognized the challenges faced by KBR during the early stages of the Iraq war, but said it should have renegotiated prices with suppliers to get better deals.

The contract referred to in the DCAA audit was awarded without competition before the U.S. invasion of Iraq and had a potential value of $7 billion. To date, KBR has billed about $2.5 billion under that contract, which was later replaced by a competitively-bid deal.

KBR also has a separate, giant logistics contract with the Army which has so far clocked up more than $7 billion and has another deal to rebuild parts of Iraq's oil sector.

In a letter to President Bush about the audit, Waxman and Democratic Rep. John Dingell from Michigan asked the president what steps were being taken to recover funds from Halliburton.

When a draft audit was released in December 2003, Bush said if Halliburton overcharged the U.S. government, the money would have to be repaid.

"Contrary to your assertions, however, the administration has withheld these audits from Congress for months and Halliburton has repaid nothing under this contract," wrote the Democratic lawmakers to the president.

They complained to the president that the administration had ignored more than a dozen requests for copies of KBR oil contract audits

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