Halliburton Iraq deals 'contract abuse'

Pentagon auditors flag over $1 billion of potential overcharges by Texas firm.
June 28, 2005: 12:10 PM EDT

WASHINGTON (Reuters) - A top Army procurement official said Monday Halliburton's deals in Iraq were the worst example of contract abuse she had seen as Pentagon auditors flagged over $1 billion of potential overcharges by the Texas-based firm.

Bunny Greenhouse, the Army Corps of Engineers' top contracting official-turned whistle-blower, said in testimony at a hearing by Democrats on Capitol Hill that "every aspect" of Halliburton's oil contract in Iraq had been under the control of the Office of the Secretary of Defense.

"I can unequivocally state that the abuse related to contracts awarded to KBR (Kellogg Brown and Root) represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," said Greenhouse, a procurement veteran of more than 20 years.

Her blistering criticism came as Democrats released a new report including Pentagon audits that identified more than $1.03 billion in "questioned" costs and $422 million in "unsupported" costs for Halliburton's work in Iraq.

Defense Department spokeswoman Lt. Col Rose-Ann Lynch said the Pentagon had received the report but had not had a chance yet to fully review it.

"The department is committed to an integrated, well-managed contracting process in Iraq," said Lynch, adding that just because costs were questioned by auditors this did not mean a company had overcharged the military.

Halliburton's subsidiary KBR is the U.S. military's biggest contractor in Iraq and has been accused by Democrats of getting lucrative work there because of its ties to Vice President Dick Cheney who headed Halliburton company from 1995-2000.

Pressed by lawmakers whether she thought the defense secretary's office was involved in the handout and running of contracts to KBR, Greenhouse replied: "That is true."

"I observed, first hand, that essentially every aspect of the RIO (Restore Iraqi Oil) contract remained under the control of the Office of the Secretary of Defense. This troubled me and was wrong," said Greenhouse.

Halliburton issued a statement strongly rejecting comments by Greenhouse and others at the hearing, including a former KBR employee who accused the company of overcharging for food services provided to troops under a logistics deal.

"The only thing that's been inflated is the political rhetoric which is mostly a rehash of last year's elections," spokeswoman Cathy Mann said of the hearing.

Halliburton defends itself
Regarding claims of political influence because of Cheney, Mann said it was easier to "assign devious motives than to take the time to learn the truth."

Both the Pentagon and the Corps, which was in charge of a sole-source oil contract given to KBR in Iraq, have denied any special treatment for KBR. The Corps did not immediately respond to questions.

Democrats called for an urgent hearing and an investigation into what they called contracting abuses involving KBR.

"This testimony doesn't just call for Congressional oversight -- it screams for it," said Sen. Byron Dorgan, a Democrat from North Dakota.

What concerned Greenhouse most was that the oil contract, which had a top value of $7 billion, was given to KBR without competitive bidding. She irked her bosses by writing her concerns by hand in official documents but said these were overlooked.

In one instance, she said Army Corps officials bypassed getting her signature to grant a waiver for KBR to be relieved of its obligation to provide cost and pricing data for bringing fuel into Iraq.

That waiver was granted after a draft Army audit said KBR may have overcharged the military by at least $61 million to bring in fuel to Iraq to ease a shortage of refined oil.

Greenhouse acknowledged she had become a thorn in the side of the Army Corps and said she had been advised not to attend the hearing because of its partisan nature.

Rory Mayberry, a former food production manager at a U.S. military base for KBR from February-April 2004, said the company charged for meals it did not serve to troops and had dished up spoiled food.

KBR's Mann dismissed his taped testimony and said issues regarding billing over food services had been resolved.

The daughter of a Halliburton employee killed in Iraq has sued the company for wrongful death. Read more here.