Audit: Halliburton overbilled taxpayers by about $61 million

Audit: Halliburton overbilled millions
Pentagon questions charges for two contracts
By MICHAEL HEDGES
Copyright 2003 Houston Chronicle Washington Bureau

WASHINGTON -- Houston-based Halliburton Co. may have overbilled taxpayers by as much as $61 million for trucking gasoline into Iraq, Pentagon auditors said Thursday.

The Pentagon's Defense Contract Audit Agency said Halliburton also may have tried to charge the government $67 million more to manage cafeterias for U.S. troops than the company had agreed to pay the subcontractors hired to actually do the work.

In the military's first public criticism of Halliburton subsidiary KBR since the company went to work in Iraq, Pentagon officials said Thursday that they had discovered "serious problems" with the company's costs and demanded a detailed response.

"Right now the burden is on the company to come back and say why this has happened," a senior Pentagon official said.

The Pentagon has refused to pay the $67 million difference in the cafeteria bill and has told Halliburton that the company could have to forfeit the $61 million in fuel overcharges.

The Defense Department, however, has not become so concerned that it has stopped handing Halliburton work. On Thursday, the U.S. Army Corps of Engineers revealed it had assigned Halliburton another $222 million project to repair oil pipelines and a water treatment facility in Iraq.

The company has not been accused of fraud or any other kind of intentional wrongdoing, Pentagon officials said.

Halliburton Chief Executive Officer Dave Lesar said late Thursday that "any contract that is this large and grows this fast is, of course, going to be subject to question."

"We will work with all government agencies to establish that our contracts are not only good for the United States" but that Halliburton "is the best and most qualified contractor to perform these difficult and dangerous tasks."

The $61 million in fuel overcharges, through Sept. 30, were calculated by taking the difference between what Halliburton billed the government for fuel bought in Kuwait and shipped to Iraq and what another contractor paid to provide gasoline to Iraq by importing it through Turkey, an official said.

Halliburton billed $2.27 a gallon for the fuel, which included transportation costs. The unnamed contractor charged $1.18 a gallon, the official said.

Asked if he believed Halliburton was intentionally padding two no-bid contracts that could yield as much as $15.6 billion from work in Iraq, the official said, "I do not think it is a systematic problem with overcharging."

There is no allegation that Halliburton profited by the excess billing. The $2.27 price was charged to Halliburton by the sole Kuwaiti contractor allowed by the government of that country to bid on a Halliburton subcontract.

What the Pentagon does allege is that Halliburton did not do everything required under government contracting rules to find the best possible price for goods procured under a no-bid contract.

Halliburton officials say they sought bids from four suppliers in Kuwait but only met with the specifications stipulated by the Corps of Engineers.

Halliburton officials also say security accounts for much of the high cost of trucking fuel in from Kuwait.

While the military has been able to ensure that fuel moves regularly from the north, escorted convoys in the south have become "erratic." The company's subcontractor has had one driver killed, nine workers injured and 20 trucks damaged.

"Halliburton has repeatedly tried to transfer the fuel delivery mission to a local supplier because it is dangerous for our people," the company said. "So far, no one ... has been able to find a replacement for Halliburton."

Halliburton has promised to respond to the gasoline audit by Dec. 17, with the Defense Contract Audit Agency expecting to produce a final report by Christmas.

On the $67 million overbilling for cafeteria services, a Pentagon official said he believed it was a case of poor billing oversight rather than an attempt by the company to rip off the taxpayers.

"You'd have to be pretty stupid to put an error like this in a (bill to the government)" he said. "My first assumption is that it was an egregious mistake."

Halliburton charged the government roughly $220 million for the cafeterias, where soldiers and U.S. civilians eat hot meals daily. Halliburton had agreed to pay a subcontractor about $153 million to actually fulfill that contract.

Company officials argued that what the Pentagon source is referring to was a proposal, not an actual invoice, for cafeteria construction.

While Pentagon auditors have found other, scattered small problems in contracts, "we have not found any other major significant problems," the official said.

So far, the Pentagon has authorized $1.5 billion in expenditures under the oil contract held by Halliburton. The company, however, has been assigned tasks expected to cost $2.7 billion.

The charge that a Kuwaiti subcontractor handpicked by that country's government is gouging taxpayers for gasoline is potentially explosive.

America went to war to free Kuwait from Saddam Hussein's army in 1991. During the war with Iraq that began this March, Kuwait agreed to provide all of the fuel used by the U.S.-led coalition for free. Kuwait also has pledged $5 billion for Iraqi reconstruction as part of the coalition.

While the Pentagon is just now raising concerns about Halliburton's fees, Democrats on Capitol Hill have been clamoring for an investigation for some time.

"This audit confirms what we've known for months," said California Rep. Henry Waxman, the ranking Democrat on the House Government Reform Committee and a frequent Halliburton critic.

"Halliburton has been gouging taxpayers, and the White House has been letting them get away with it. It is deplorable, and we need to put an immediate end to it. There needs to be a top-to-bottom review of all the Iraqi contracts."

Halliburton's contract in Iraq has been controversial ever since the Pentagon revealed in March it had hired Vice President Dick Cheney's former employer to repair Iraq's oil fields without seeking bids from other companies.

The Corps of Engineers has promised to replace Halliburton's sole-source assignment with two new, competitively bid contracts. Halliburton is one of the companies bidding for that work.

News of the Pentagon audits leaked out just as the Corps of Engineers had assigned Halliburton a new, $222 million task order for more work in Iraq's oil fields.

That assignment calls for the company to repair a major oil pipeline system in northern Iraq that was damaged when coalition troops destroyed a key bridge during the combat phase of the operation. Halliburton also will replace another key pipeline at an undisclosed location and repair a water purification plant, used to pump water into Iraq oil fields and boost crude production.

To date, Halliburton has been assigned nearly $2.3 billion worth of work by the Corps of Engineers. That does not all accrue to the company's bottom line. Rather, Halliburton is permitted to earn a profit margin from 2 percent to 7 percent for its work in Iraq.

http://www.chron.com/cs/CDA/ssistory.mpl/page1/2289160