Auditors put pressure on US army to act against Halliburton

1.00pm - By SUE PLEMING

WASHINGTON - Pentagon auditors "strongly" urged the Army last week to withhold paying 15 per cent of Halliburton's bills in Iraq for over US$4 billion ($6.11 billion) of logistical work, said a military document released on Tuesday.

The August 16 memorandum from the Defence Contract Audit Agency (DCAA) to Army Field Support Command in Rock Island, Illinois, said the DCAA found "numerous, systemic issues" with Halliburton unit Kellogg Brown and Root's cost estimates for work in Iraq supporting US troops.

"We strongly encourage you (to) ... only allow payment of the 85 per cent as specified in the (foreign procurement) clause until KBR submits adequate proposals," said the memo, signed by DCAA branch manager William Daneke.

Halliburton, which was run by Vice President Dick Cheney from 1995-2000, is involved in a long-standing billing dispute with the US Army over documentation for its bills feeding and housing troops in Iraq and Kuwait under a 2001 logistics deal.

Last Tuesday, the Army said it would withhold 15 per cent of payments from Halliburton but then abruptly changed and said it would give the company more time to provide additional information before any action was taken.

Linda Theis, a spokeswoman for Army Field Support in Illinois, said the Army was still reviewing information provided by KBR and anticipated a decision by the end of this week or early next week.

Halliburton spokeswoman Wendy Hall said the company strongly disagreed with the auditors and would file a claim asking that the 15 per cent withhold should not apply.

"The facts show that our system that produces proposals and cost system work well," she said. "Halliburton continues to believe that there is no legal justification to apply the 15 per cent withholding," Hall added.

The memorandum was included in a letter to Defence Secretary Donald Rumsfeld from California Democrat Rep Henry Waxman, one of the strongest critics of KBR.

In his letter to Rumsfeld, Waxman said despite KBR's "record of overbilling and shoddy accounting", the Defence Department had awarded Halliburton large new contracts and repeatedly waived procurement regulations.

"This special treatment of Halliburton should end," wrote Waxman.

The memorandum cites unsupported costs by KBR worth at least US$1.82 billion so far out of logistical work totalling US$4.3 billion.

"Inadequate proposals have, and will continue to, result in significant delays in issuing our audit reports, significant unsupported costs and/or reports containing an adverse opinion, which impairs the government's ability to negotiate contracts in a timely manner," said the memorandum.

The Army has estimated the withholding would cost KBR about US$60 million a month for its logistics contract in Iraq.

Overall, KBR has the potential to earn US$18 billion for its work in Iraq under a variety of contracts ranging from fixing oil fields to delivering mail for US troops.

Halliburton shares closed 0.63 per cent lower at US$28.20 on the New York Stock Exchange. Last week, the stock tumbled more than five per cent after the Army said it would withhold payments but recovered when the decision was reversed.

- REUTERS

Herald Feature: Iraq