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Iraq: Halliburton Continues to Profit

by Matt KelleyAssociated Press
March 30th, 2004

WASHINGTON Halliburton Co. has reaped as much as $6 billion in contracts from the U.S. invasion of Iraq, but improprieties in those military contracts have also given Vice President Dick Cheney's former company high-profile headaches.

Pentagon auditors have criticized Halliburton's estimating, spending and subcontracting, and they plan to begin withholding up to $300 million in payments next month. The Justice Department is investigating allegations of overcharges, bribes and kickbacks. Democrats have accused the company of war profiteering.

Even some Wall Street analysts are asking whether Halliburton would be better off jettisoning its Iraq contracts.

"From the shareholders' point of view, don't you have to consider whether it's worth it?" Jim Wicklund of Banc of America Securities asked Halliburton executives during a March 11 conference call with investment analysts.

Halliburton is fighting back, strongly denying wrongdoing and claiming to be the victim of a political smear campaign. The company set aside nearly $200 million to repay the Pentagon for any overcharges. Executives reassured analysts that Halliburton has enough cash on hand about $2 billion to weather any more repayments or penalties.

Having a clean contracting system in Iraq is essential because it's the first experience Iraqis will have with the American model of business-government partnerships, said Peter Singer, a former Defense Department official who wrote a book on military contracting.

"The success in the war in Iraq and the follow-up to it depends on not just how good a job our soldiers do but also on how good a job our contractors do," said Singer, a fellow at the Brookings Institution. "If we award contracts to firms that aren't performing to the utmost, it's not only a waste of taxpayer money but it also harms national security."

Halliburton also is spending millions on a nationwide television advertising campaign featuring images of Halliburton workers helping American troops.

The company's defenders say Halliburton had to perform a lot of costly and dangerous work very quickly, with minimal government oversight at the beginning.

"The root cause of a lot of these problems is that it's a huge, rapidly evolving enterprise," said Steven Schooner, a contracting expert and assistant law professor at George Washington University. "When the money was spent the government was not applying the same type of resources in terms of planning, thought and caution that we normally expect and demand in public contracting."

Halliburton's detractors are undeterred.

"The entire Halliburton affair represents the worst in government contracts with private companies: influence peddling, kickbacks, overcharging and no-bid deals," Sen. Frank Lautenberg, D-N.J., said this week.

Bush administration officials say Vice President Cheney a former defense
secretary has nothing to do with awarding contracts to the company he led
from 1995 to 2000.

Through subsidiary KBR, Halliburton's experience with military contracts dates back to World War II. The company did similar logistics work for troops in Vietnam, the first Gulf War, Bosnia and Kosovo.

Halliburton says 15 percent of its revenue last year came from work in Iraq. That money came mainly from two contracts with KBR, formerly known as Kellogg, Brown & Root.

The biggest contract is with the Army to provide logistical support for troops meal service, laundry, communications and housing. The second is a contract with the Army Corps of Engineers to fight oil well fires and rebuild Iraq's devastated oil industry.

Under criticism for awarding the oil contract outside of the usual competitive bidding process, the Army split the oil reconstruction work into two parts and held a bidding competition late last year. Halliburton got one of those contracts to reconstruct oil facilities in southern Iraq. The contract was worth more than $1 billion.

Problems already identified with Halliburton's business include:

_ Allegations it overcharged by $61 million for gasoline it delivered from Kuwait to civilians in Iraq. Pentagon auditors say Halliburton did not fully justify spending more than $1 extra per gallon for gasoline delivered from Kuwait than gas it bought from Turkish companies. Halliburton says the higher price reflected charges by the Kuwaiti subcontractor that was the lowest bidder. Halliburton also says it came up with the idea of tapping the Turkish market and saved the government more than $100 million.

_ A Pentagon audit that concluded Halliburton charged millions for meals never served to troops. Halliburton has repaid $36 million and set aside an additional $141 million to reimburse the military for possible overcharges. On April 1, the Defense Department plans to begin withholding 15 percent of payments to Halliburton up to $300 million because of the alleged overcharging. Halliburton officials say problems might have occurred because the number of troops in and near Iraq often changed quickly and drastically.

_ A Defense Department probe into allegations a Kuwaiti subcontractor paid
kickbacks to two former Halliburton employees. The company says it repaid $6 million to the government after it discovered the scheme.

_ Widespread problems with estimating costs, justifying spending and following federal regulations. The Defense Contract Audit Agency found so many faults with KBR's practices that it warned the Defense Contract Management Agency the company's estimates were unreliable. Halliburton says any glitches were the result of working quickly to establish services in a war zone.

_Pentagon and Justice Department investigations into possible overcharging on KBR contracts to support troops in Bosnia and Kosovo.

Federal authorities also are investigating whether Halliburton violated U.S. laws prohibiting deals with Iran, and U.S. and French authorities are probing whether KBR was involved in paying $180 million in bribes to Nigerian officials to get favorable treatment for a natural gas project.

Halliburton reported making $3.6 billion in revenue from Iraq contracts last year. Executives say the company is taking in about $1 billion a month from its work in Iraq, bringing its total revenue to about $6 billion.




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