Halliburton's Higher Bill

Rising Costs Reflect Growing Demand for Firm's Services

By Griff Witte
Washington Post Staff Writer
Wednesday, July 6, 2005; D01



The Army has ordered nearly $5 billion in work from Halliburton Co. to provide logistics support to U.S. troops in Iraq over the next year, $1 billion above what the Army paid for similar services the previous year.

The new order, which comes despite lingering questions about the company's past billing, replaces an earlier agreement that expired last June but had been extended through this spring to ensure a continuous supply of food, sanitation, laundry and other logistical services for the troops, according to Linda K. Theis, an Army spokeswoman.

The new order does not change the nature of Halliburton's work, but the higher price tag does reflect the growing demand for the company's services as U.S. forces continue to battle a stubborn insurgency two years after the fall of Saddam Hussein.

The increased bill parallels ballooning overall costs in Iraq. President Bush said in March 2003 that combat in Iraq would cost about $60 billion. But the cost for military operations alone had hit $135.3 billion as of March 2005, according to the Office of Management and Budget. The price tag would be far higher if the costs to fund the Coalition Provisional Authority, reconstruction projects and intelligence operations were included.

Halliburton subsidiary Kellogg Brown & Root has received more money from the U.S. involvement in Iraq than any other contractor. The company has been a lightning rod for criticism by administration foes who think Halliburton's high-level connections -- most notably its former chief executive, Dick Cheney, who is now vice president -- may have given it undue influence in winning sole-source business.

Under the Army's previous order for logistics support, Halliburton was paid $6.3 billion for work during the first two years of the occupation, including $3.98 billion between the beginning of May 2004 and the end of May 2005. Under the new deal, Halliburton will receive $4.97 billion to support U.S. troops in Iraq until May 2006.

Both orders stem from a 10-year contract known as LOGCAP, which KBR won in a competitive bid in 2001. As of the beginning of June, the Army had obligated nearly $12 billion to the company under the logistic contract, the vast majority of it for work in Iraq.

The new order took effect two months ago but had not been made public. Theis, the spokeswoman for the U.S. Army Field Support Command, which oversees the contract, said that there was "not a conscious decision" to keep the new deal quiet but that her office had simply been too busy with other news.

Rep. Henry A. Waxman (D-Calif.), a vocal critic of Halliburton, said the Army should not be giving the company orders for more work at the same time it is citing the company for unreasonable bills. "The accountability vacuum at the Defense Department is costing the taxpayer dearly," Waxman said in a statement.

The Pentagon last week confirmed a report by congressional Democrats saying that the Defense Contract Audit Agency has questioned more than $1 billion of Halliburton's bills for work in Iraq under LOGCAP and an energy contract called Restore Iraqi Oil. Among the costs that Pentagon auditors questioned were $152,000 for movie rentals, $1.5 million for tailoring and two multimillion-dollar transportation bills that appeared to overlap.

Pentagon spokeswoman Lt. Col. Rose-Ann L. Lynch said that the questioned costs are not necessarily overcharges and that contracting officials have either resolved, or are in the process of resolving, most of the discrepancies.

Halliburton has said that questioning costs is part of the normal contracting process and that the company is doing all it can to support U.S. troops in a dangerous environment.

About seven months ago, the Army gave Halliburton a list of the services it wanted under the primary task order for the LOGCAP contract, Theis said. But the company estimated the cost of those services would top $10 billion a year, far above what the Army had budgeted. Army officials ended up paring down their list, and they reached agreement with the company on the $4.97 billion figure this spring.

The Army would not provide a copy of the task order without a Freedom of Information Act request. But a draft of the order was provided to The Washington Post by David Phinney, a correspondent for CorpWatch.org, a Web site that monitors contractor involvement in Iraq.

The LOGCAP contract is not the only way the Army can buy logistical services, but it has received heavy use at a time when the Pentagon is outsourcing many of its non-war-fighting functions. Some have questioned whether such reliance on a single contractor makes sense. In a report issued last July, the Government Accountability Office found that the government could save $31 million -- or 43 percent -- on food services at six locations in Kuwait if it bypassed LOGCAP and KBR, working instead through a subcontractor.

Halliburton said in January that it would try to sell KBR, citing in part the controversy surrounding the company's work. Halliburton spokeswoman Jennifer W. Dellinger said in a statement yesterday that "no timeline has been set for a separation of KBR, nor has a decision been made on what form any potential separation might take."