Report Adds to Criticism of Halliburton's Iraq Role - New York Times

Even as a Halliburton subsidiary was absorbing harsh criticism of its costs on a 2003 no-bid contract for work in Iraq, the government officials overseeing a second contract wrote that the company was running up exorbitant new expenses on similar work, according to a report issued yesterday by the staff for the Democrats on the House Government Reform Committee.

The report, prepared for a frequent critic of Halliburton, Representative Henry A. Waxman of California, is based on previously undisclosed correspondence and performance evaluations from 2004 and 2005.

The documents show that the government's contracting officers became increasingly frustrated as they tried to penetrate what they considered to be inaccurate or misleading progress reports and expense vouchers filed by the subsidiary, Kellogg Brown & Root.

In August 2004, one of the officers wrote to the company that "you have universally failed to provide adequate cost information as required."

A few months later, after the company was served with a "cure notice," in which the government threatened to terminate the contract if performance was not improved, or "cured," another officer said he was writing "in sheer frustration with the consistent lack of accurate data."

Kellogg Brown & Root's second contract, awarded in January 2004 for rebuilding oil infrastructure in southern Iraq, has a maximum value of $1.2 billion. A company spokeswoman, Melissa Norcross, said that the report was "as devoid of context as it is new information" and that many of the issues raised by the contracting officers had been resolved.

The company, Ms. Norcross said, was forced to work with an ever-shifting cast of oversight organizations and at least 15 government contracting officials. "With each change, the company adjusted to meet the needs of its customer," she said, "all while operating in an extremely hostile war zone."

But Mr. Waxman, the ranking Democrat on the committee, said the report showed that the company had "actually done a worse job under its second Iraq oil contract than it did under the original no-bid contract."

William L. Nash, a retired Army general who is a senior fellow at the Council on Foreign Relations and an expert on post-conflict zones, said the unusually revealing documents laid bare "a microcosm of all the ills" of the Iraq rebuilding effort. "This a continuing example of the mismanagement of the Iraq reconstruction from the highest levels down to the contractors on the ground," he said.

The second contract was not terminated after the cure notice, and contracting officers later noted improvements in some areas. But the company received what appears to be a rebuke when it was given nothing out of a possible $7.9 million in socalled award fees for its first year of work on the contract. The award fees are incentives given by the government to reward good performance.

An award fee given for a later period, roughly the first half of 2005, was about 20 percent of the maximum, which Mr. Nash, who has been involved in determining such fees, described as extraordinarily low.

Both Kellogg Brown & Root contracts called for things like repairing oil wells and pipelines, installing power generators at oil facilities and importing fuel to Iraq. The first contract, worth $2.4 billion, generated enormous controversy after Pentagon auditors questioned more than $200 million in fuel delivery costs.

Critics like Mr. Waxman called the challenged costs overcharges, a description rejected by the company, which claimed a measure of vindication last month when the Army overruled the auditors and reimbursed nearly all of the delivery charges.

The new report, which says that Pentagon auditors have questioned $45 million of the $365 million in costs they reviewed, may revive the battle. A spokesman for the Defense Contract Audit Agency confirmed those figures.

Responding to the numbers, an official with Kellogg Brown & Root said, "Audits are part of the normal contracting process, and it is important to note that the auditors' role in the process is advisory only."

But what are likely to be seen as the most striking portions of the report are those that cite the variously stern, heated and even anguished language of contracting officers trying to bring the company to heel.

"As I have said in numerous meetings, KBR's lack of cost containment and funds management is the single biggest detriment to this program," one officer, Maj. Michael V. Waggle, wrote in the cure notice. He noted that the company had listed an impossibly high cost overrun of $436,019,574 on one job, charges of $114,308 for an oil spill cleanup that failed to remove any oil and another set of tasks in which the overruns were 36.9 percent of all costs.

The slides used in presentations during the deliberations of the board that determined the first award fee are almost equally eye-catching. On one slide, covering the company's success at meeting its planned schedules, a section labeled "Strengths" bears only the notation "N/A," presumably meaning no answer or not applicable. The "Weaknesses" section contains four detailed items.