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IRAQ: U.S. Army Won't Withhold Payment to Halliburton

The U.S. Army has decided not to withold payment on disputed bills involving billions of dollars for Iraq contract work after Halliburton threatened that delays in payment could lead to an interruption of crucial support services to the U.S. military.

by Sue PlemingReuters
February 3rd, 2005

WASHINGTON - The U.S. Army on Thursday said Halliburton Co.'s Kellogg Brown and Root unit would not be subject to a blanket 15 percent withholding for the payment of disputed bills involving billions of dollars of work in Iraq.

However, an Army spokeswoman said this did not mean all bills would be paid immediately and that decisions on whether to withhold payments would be made on a case-by-case basis.

KBR provides logistical support to U.S. troops in Iraq and has been bogged down for more than a year in a fight over cost estimates with the Army, which had threatened to withhold payment of up to 15 percent of the Texas company's bills.

Last year, the Army estimated the withholding would cost the company tens of millions of dollars a month for its giant logistics contract.

Halliburton, which was run by Vice President Dick Cheney from 1995-2000, welcomed the announcement, calling it "great news" for the engineering giant,

"It means that KBR will be able to continue working closely with the Army Field Support Command to definitize task orders under the LOGCAP III contract while still providing the same great level of support to the soldiers in the field," said Halliburton spokeswoman Beverly Scippa, referring to KBR's logistics contract with the U.S. Army.

Linda Theis, a spokeswoman for U.S. Field Support Command in Rock Island, Illinois, said the Office of the Assistant Secretary of Defense for Acquisition, Logistics and Procurement, had granted a "deviation" from usual U.S. government procurement rules.

She said this allowed for 100 percent payments to be made to KBR on "undefinitized task orders," or work orders for which all the final details have not yet been provided.

"It is important to note that each undefinitized task order will be looked at individually under this deviation action and then an individual implementation plan will be developed for each task order," said the military's statement.

SUPPLY THREAT TO TROOPS

Halliburton had told the Army that any delays in payment of bills could lead to an interruption of crucial support services to the U.S. military by KBR, whose tasks in Iraq range from delivering mail and cooking meals to setting up bases.

"This decision has given the army the ability to protect both the taxpayers money and get support to our troops," said Theis, adding that all bills would be closely scrutinized and the company would have to justify its costs.

Several U.S. government departments have launched investigations into Halliburton's work in Iraq, including whether it overcharged to supply fuel to Iraqi civilians. The company says its prices were fair and denies wrongdoing.

Currently there are 94 task orders under KBR's logistics contract with the military and 65 of these are listed as "undefinitized contract actions." Of these, 29 have now been definitized and 36 still require definitization, said Theis.

An undefinitized task order allows a contractor to be reimbursed for allowable costs up to a limited amount stated in the work order. Under government procurement rules, a company can have up to 15 percent docked from all bills if a dispute arises over costs.

Halliburton's Iraq-related work contributed about $1.7 billion to its fourth-quarter revenue and $13 million of operating profit, down from revenue of $2.2 billion and profit of $44 million a year earlier.

Halliburton, which has booked more than $10 billion in revenue from its contracts with the U.S. government in Iraq and Kuwait, has said it plans to spin off or possibly sell KBR, although the company last week indicated that such a move was not imminent.

In early afternoon trade, Halliburton was up 0.12 percent at $41.60 on the New York Stock Exchange.





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