Global Policy Forum

Pentagon Audit Calls Halliburton's Price "Illogical"

Los Angeles Times
March 15, 2005

Pentagon auditors said Halliburton Corp. might have overcharged the U.S. by more than $100 million on a contract to deliver fuel to Iraq in the early days of the war, according to a report released Monday. Among other items, the Pentagon's Defense Contract Audit Agency said Halliburton had charged $27.5 million to deliver $82,100 worth of liquefied petroleum gas. The DCAA called the price "illogical."

The report also faults Halliburton for misleading auditors, poorly managing multimillion-dollar subcontracts and failing to deliver key documents to justify the prices paid for fuel. The report, dated October 2004, is the most detailed yet that suggests Halliburton may have overcharged the U.S. government on its $2.5-billion contract to supply fuel and protect Iraq's oil infrastructure. An earlier draft audit of the same contract turned up $61 million in questionable charges.

The findings prompted criticism of the Bush administration by Rep. Henry A. Waxman (D-Los Angeles), whose office released the latest audit. Halliburton, the Houston conglomerate formerly headed by Vice President Dick Cheney, was the focus of repeated attacks by Democrats during the presidential campaign. "We would like to know when and how you plan to recover the overcharges from Halliburton and restore them to U.S. taxpayers and the Iraqi people," Waxman wrote in a letter to President Bush.

The U.S. Army Corps of Engineers, which oversees Halliburton's contract, declined to comment on the audit. The study is considered confidential. A spokeswoman said the corps was still negotiating final payments to Halliburton. "We will consider both the DCAA audits and all other information available to us in reaching a final government negotiating position," said Carol Sanders, the spokeswoman.

Wendy Hall, a spokeswoman for the oil services giant, called the audit part of the "normal contracting process." She said auditors did not adequately take into account that KBR, a Halliburton subsidiary, was delivering fuel in a war zone. She also said Halliburton had supplied all necessary documents to auditors and paid suppliers a fair price for fuel.

"The facts show that KBR delivered fuel crucial to the Iraqi people when failure was not an option," Hall said. "At a time when neither government agencies nor other companies could or would have delivered, KBR faced the challenges and fulfilled this urgent mission, and we did so within the appropriate bounds of government contracting."

Halliburton's contract became the subject of controversy soon after it was awarded in March 2003 without competitive bidding. Halliburton was originally contracted to protect Iraq's oil infrastructure from sabotage. Instead, the government retained it to buy and deliver fuel to Iraq to stave off civil unrest after the fall of Saddam Hussein's regime. Halliburton shipped in gas, kerosene and other fuel from Kuwait, Jordan and Turkey.

Pentagon officials have said they gave the company the contract without bidding because of the need to move quickly. However, questions remain over the role of administration appointees in its awarding. At least two career civil servants have raised the possibility that political pressure was applied in different stages of the contract process. The DCAA released a preliminary audit in December 2003 that raised questions over $61 million in possible excess charges. The latest audit increases the total amount in question to $108 million and is much sharper in its criticism.

Among the concerns raised in the latest audit are $69 million in costs associated with fuel obtained from a Kuwaiti subcontractor, Altanmia Commercial Marketing Co. The auditors criticized Halliburton for not renegotiating its initial contract with Altanmia, which was signed in the frenzied months after the March 2003 invasion of Iraq. They also contradicted a Halliburton claim that the contract with Altanmia was competitively bid, since Altanmia was the only company in Kuwait with a license to deliver.

"The other bids are irrelevant," the audit says. Auditors also said that Halliburton never supplied documentation for its costs concerning the fuel and that the company had made inaccurate statements to describe its process. Halliburton told auditors it consulted with the company's internal "worldwide suppliers listing" to determine whether fuel prices were fair. Upon investigation, auditors found the company did not maintain such a listing, the audit says. "KBR did not always provide accurate information" to auditors, it says.

Finally, the audit criticizes Halliburton's charge for transporting the liquefied petroleum gas. It suggests that the charge may have been a bookkeeping error and urges Halliburton to review it.

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