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Halliburton Intentionally Overcharged Contracts

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    Documents Describe US Auditors Battles With Halliburton By Walter F. Roche Jr. The Los Angeles Times Friday 29 March 2006
    Message 1 of 1 , Apr 7, 2006
      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
      documents show.

      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
      cure notice.

      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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