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IRAQ: Documents track Halliburton battle

Federal auditors slammed company on cost controls

by David IvanovichHouston Chronicle
March 29th, 2006

Federal auditors castigated Houston-based Halliburton Co. repeatedly for failing to control costs and adequately justify its billings when working to rebuild Iraq's southern oil industry, newly released documents show.

Questioning Halliburton's performance in Iraq, Rep. Henry Waxman, D-Calif., released government documents from 2004 and 2005 that detailed possible overcharges, billing problems and delays associated with the company's $1.2 billion contract to repair pipelines, increase power generation and boost oil production from the southern oil fields.

Halliburton subsidiary KBR is the largest private contractor in Iraq.

The report released Tuesday provided the first in-depth public examination of the battles between KBR and government overseers on its work to restore Iraq's southern energy sector.

KBR has rung up $750 million worth of charges so far under the contract. The report examined the first $365 million worth of billings.

Waxman and other critics have previously scrutinized the company's work on an initial no-bid contract to restore Iraq's oil sector, as well as a second, broader contract to provide logistical support to U.S. troops.

"This new round of overcharges and dismal performance would have been avoided if the Bush administration had listened to its own auditors," Waxman said, referring to concerns raised by the Defense Contract Audit Agency about the company's billings for those other contracts.

Halliburton spokeswoman Melissa Norcross countered that the "partisan" report produced by Waxman's Democratic staff on the House Government Reform Committee was "as devoid of context as it is new information."

The report, Norcross said, "focuses on old issues that have already been resolved in some cases more than a year ago."

Norcross pointed to a July 2005 State Department report to Congress, which lauded the progress KBR had made and noted that the company had satisfactorily addressed "most of the issues" contracting experts had raised.

Officials at the State Department and Pentagon familiar with the contract could not be reached for immediate comment.

$45 million challenged
The U.S. Army Corps of Engineers first awarded Halliburton this competitively bid contract in January 2004. Responsibility for oversight of the contract then bounced from the corps to the State Department's Project and Contract Office and then, eventually, back to the corps.

Waxman's staff combed through documents from the Project and Contracting Office and the Pentagon's Defense Contract Audit Agency, as well as evaluations from private contractor Foster-Wheeler, which was hired to help oversee the contract.

Auditors from the Defense Contract Audit Agency have challenged $45 million worth of the first $365 million in company's billings, representing about 12 percent of the contract costs, the staffers' report said.

'Rate factors' disputed
Contracting experts reviewing the billings uncovered "hidden rate factors" KBR had used to push up cost estimates, the contracting documents said. The computer files initially sent to government overseers were in a format that prevented auditors from seeing spreadsheets showing "many elements of cost in the proposals were marked up with a contigency."

The Pentagon documents listed this problem as a "weakness" in the company's cost performance.

The Waxman report called it "intentional overcharging."

Norcross noted that the cost estimates did not affect billing because "KBR does not use estimates to invoice the government."

The company "removed the contingency rate factors at the government's request, and the final negotiated costs do not include these rate factors," Norcross said.

'Systemic problems'
Pentagon officials also complained about the number of man hours being racked up in Houston on the contracts.

Halliburton also came under some criticism for failure to provide what government contracting experts deemed adequate documentation to justify the company's billings.

"You have universally failed to provide adequate cost information as required," a contracting officer wrote to KBR in August 2004, adding that this and other issues "reflect profound systemic problems."

By December 2004, however, the Defense Contract Management Agency had certified the company's estimating system, Norcross said.

Its rating improved
Contracting experts also complained Halliburton's reports seemed to have been "vetted of any information that would allow tracking of details."

Finally, in January 2005, the Project and Contracting Office threatened to yank the company's contract if problems justifying costs were not corrected, but didn't do so.

Norcross said the company's overall rating rose from "average" in January 2005 to "good" by July.



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