Friday, March 31, 2006

Halliburton overcharged for Iraq oil work: report

By Andrea Shalal-Esa
Tuesday, March 28, 2006; 7:30 PM

WASHINGTON (Reuters) - Halliburton Co., the world's second largest oil services company, repeatedly overcharged taxpayers and provided substandard cost reports under a $1.2 billion contract to restore Iraq's southern oil fields, according to a new report by U.S. Rep. Henry Waxman.

Waxman, a California Democrat, said Democratic staff members of the House Committee on Government Reform examined a series of previously undisclosed government audits and correspondence that criticized Halliburton's performance under the "Restore Iraqi Oil 2" (RIO2) contract.

The documents, which cover the period from January 2004 to July 2005, painted "an absolutely abysmal picture of Halliburton's RIO2 work" and cited profound systemic problems, misleading and distorted cost reports, he said.

Halliburton, a Texas-based company formerly run by Vice President Dick Cheney, dismissed the committee report as partisan and said it focused on old issues with the two-year contract that have been resolved.

"After two years and from thousands of miles away, it is easy to criticize decisions and actions that were based on urgent mission requirements and severe time constraints," the company said in a statement.

Halliburton, the largest private contractor in Iraq, said the contract went through "countless changes" and review by at least 15 different government contracting officials.

Waxman, who has introduced legislation to limit sole-source contracts in the future, said lawmakers did not know much about what had happened with the contract since July 2005, adding: "From what we can see, major problems remain."

Halliburton said its engineering and construction arm KBR, which is gearing up for an initial public stock offering, had received 30 task orders under the contract to date, for a total current value of nearly $750 million and work was ongoing.

The Democratic report said that, in addition to the RIO 2 contract, Halliburton was also paid $13.5 billion for providing troop support under a logistics contract with the U.S. Army, and $2.4 billion under the original RIO contract to import fuel into Iraq and rebuild Iraq oil infrastructure.

The Pentagon's Project and Contracting Office (PCO) found that Halliburton repeatedly overcharged the government, Waxman said, citing the documents.

PCO put KBR on notice in January 2005 that it could cancel the contract for cause. It lifted the notice six months later, saying KBR demonstrated "adequate" compliance. In January, it exercised one of three one-year options to extend the deal.

In one case, the agency said Halliburton tried to inflate cost estimates by $26 million. In another, it said Halliburton claimed costs for laying concrete pads and footings that the Iraqi Oil Ministry had already installed.

The report said the same agency reported Halliburton was "accruing exorbitant indirect costs at a rapid rate," while the Defense Contract Audit Agency challenged $45 million of $365 million in costs as unreasonable or unsupported.

The PCO also cited "profound systemic problems" with Halliburton's cost reporting and said some documents were stripped of information that would allow tracking of details.

It said Halliburton's work under RIO 2 was 50 percent late and officials refused to cooperate with oversight officials.

Halliburton, run by Cheney from 1995-2000, has been under scrutiny for its contracts in Iraq.

© 2006 Reuters

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