Halliburton Intentionally Overcharged Contracts
- Documents Describe US Auditors' Battles With Halliburton
By Walter F. Roche Jr.
The Los Angeles Times
Friday 29 March 2006
A government study says the company overcharged on a crucial Iraq
contract and did not comply with regular reporting obligations.
Washington - Frustrated government auditors pleaded, cajoled and
finally threatened Halliburton Co. executives who repeatedly failed to
comply with government reporting requirements under a key Iraq
contract with a $1.2-billion potential price tag, newly released
The documents, along with a report, were issued Tuesday by the
Democratic staff of the House Committee on Government Reform. Rep.
Henry A. Waxman (D-Los Angeles) had requested the report on the
contract, considered crucial to the restoration of oil production
capacity in southern Iraq.
The 15-page report cites findings by auditors that Halliburton
overcharged - "apparently intentionally" - on the contract by using
hidden calculations, and attempted in one instance to bill the
government for $26 million in costs it did not incur. Auditors also
challenged $45 million in other costs, labeling them as "unreasonable
or unsupported," the report said.
The report blamed the Department of Defense for awarding the
contract despite warnings from auditors that Halliburton's cost
estimating system had "significant deficiencies." Although federal
officials have criticized the company and threatened to cancel its
contracts, Halliburton remains the largest private contractor in Iraq.
The contract, awarded in January 2004, was one of three Iraq pacts
for the company once headed by Vice President Dick Cheney.
Although the other two agreements - one for supplies for U.S.
troops and the other for fuel and oil industry repairs - have faced
heavy criticism as no-bid contracts, Waxman and his staff said
Tuesday's report was the first to focus on the third Halliburton
contract, for the repair of oil fields in southern Iraq, which was
awarded after a competitive bidding process.
"Halliburton has pulled off the impossible," Waxman, a staunch
critic of the firm, said in releasing the report. "It has actually
done a worse job under its second Iraq oil contract than it did under
the original no-bid contract."
Melissa Norcross, a spokeswoman for Halliburton and a subsidiary,
KBR, dismissed the report as partisan, and said it focused on issues
that had been resolved. She said Waxman failed to include a State
Department report to Congress that commended the company "for numerous
improvements" to its cost reporting system.
In the days after the U.S. invasion in March 2003, Bush
administration officials said the revitalization of Iraq oil fields
would finance the country's reconstruction. Since then, though, oil
output has failed to exceed prewar levels.
The documents released Tuesday review objective examinations of
Halliburton's performance and compliance, including by the Pentagon's
Defense Contract Audit Agency. The records provide details of the
repeated efforts of government auditors to get Halliburton to comply
with record-keeping and reporting requirements.
"You are hereby notified that the government considers that you
have universally failed to provide adequate cost information as
required under the subject contract," a U.S. contracting officer wrote
in an Aug. 28, 2004, letter to an executive of KBR, the Halliburton
unit formerly known as Kellogg Brown & Root. "Furthermore, this
contract is accruing exorbitant indirect costs at a rapid rate."
Another memo stated: "KBR has done the minimum and has not shown
initiative in providing the information required, despite repeated
Other audit documents cite Halliburton's "lack of cost controls."
In November 2004, citing the continued lack of required data from
Halliburton, government auditors warned that noncompliance would
result in "adverse contractual action" and the issuance of a so-called
In late 2004, alarmed U.S. officials discovered that Halliburton,
in a routine monthly report, had projected an estimated $436-million
cost overrun on the project. "This," the government delinquency report
states, "is unacceptable."
In late January 2005, the Pentagon's Project and Contracting
Office formally issued the threatened cure notice, and warned
Halliburton that unless the deficiencies were corrected, the contract
could be canceled.
"To date, KBR has yet to produce a cost report that would meet
minimal acceptable standards," the Jan. 29, 2005, notice states,
adding that the company "is in violation of its basic contractual
KBR responded with a corrective action plan on Feb. 20, 2005, and
promised "to take the necessary measures to correct deficiencies,"
adding that measures had been taken to identify "systemic
deficiencies." KBR blamed delays on government requests for voluminous
In a March 7, 2005, response, an official of the Joint Contracting
Command cited the "repeated failed attempts by the government to get
factual data from the cost report. In sheer frustration with the
consistent lack of data, the government has been pushed into the
position of asking for everything possible in an attempt to be able to
track the KBR costs."
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