another tricky dicky
Army says it won't withhold payments to Halliburton
Decision made despite problems found in audits
By Robert O'Harrow Jr., Washington Post | February 4, 2005
WASHINGTON -- In a departure from normal policy, the Army said yesterday that it will not withhold future payments to Halliburton Co., despite audit reports last summer that said the giant logistical contractor had not properly accounted for a wide array of work in Iraq and Kuwait.
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The decision was made months after Army auditors recommended withholding 15 percent of payments, about $60 million a month, from Halliburton subsidiary Kellogg, Brown & Root Inc., or KBR, the largest government contractor in Iraq.
Acquisition regulations require the withholding in cases where work has not been "definitized" -- the process in which companies negotiate the final terms, conditions, and costs of work orders with the government.
Army officials sought a waiver of the requirement to "ensure we're continuing our contract operations in the theater . . . and to maintain our responsibility to the taxpayers," said Dan Carlson, a spokesman for the Army Field Support Command. Contracting officials can still withhold up to 15 percent in payments on a case-by-case basis, he said.
The decision was praised by Halliburton and derided by critics of the Bush administration, who said it underscores claims that the company has received special treatment. Halliburton became a political lightning rod during the presidential campaign last year because Vice President Dick Cheney served as the company's chief executive from 1995 to 2000 and KBR received no-bid contracts during the war.
The government has set aside $9.3 billion to pay KBR for troop support in the Middle East, Carlson said. KBR won the contract through competitive bidding. It has been paid almost $6.4 billion for work that includes base camp operations, supply convoys, sanitation, and fitness centers, the spokesman said. KBR also received a no-bid contract to repair Iraq's oil fields.
Democrats said senior Pentagon officials have ignored audit reports documenting allegations that Halliburton overcharged the government and mismanaged tax dollars. Critics said the Pentagon has given the company special treatment by twice waiving deadlines for imposing the 15 percent withholding.
Yesterday, Representative Henry Waxman, Democrat of California, said, "This action is incomprehensible."
"Once again, the Bush administration is putting Halliburton's interests above those of the taxpayers," he said in a statement.
Halliburton spokeswoman Beverly Scippa said the Army's decision "means that KBR will be able to continue working closely with the Army Field Support Command . . . while still providing the same great level of support to the soldiers in the field."
"What is important to note is that the top priority has always been making sure that the troops get taken care of," she said.
The withholding of payments to KBR because of "definitization" questions was supposed to have begun last summer, about the time an audit report found that $1.8 billion of work in Iraq and Kuwait had not been adequately accounted for. An official overseeing the logistics support contract chose to defer the decision to avoid any impact on troops in Iraq, Kuwait, and Afghanistan.
At the end of November, Army officials formally asked to waive the 15 percent withholding rule. That request was forwarded to the undersecretary of defense for acquisition, technology, and logistics. The final decision was made by Deidre Lee, the Pentagon director of acquisition and procurement policy, Army spokesman Carlson said.
Halliburton still faces questions from auditors about work in Iraq, including whether KBR overcharged for gasoline while on contract to help rebuild Iraqi oil fields. Under that contract, KBR did about $2.5 billion of work. KBR won a competitive bid for part of a contract to continue repairing Iraq's oil fields.
The Justice Department is investigating older allegations about profiteering in the Balkans and other activity in Nigeria and Iran.
Late last year, Halliburton announced some good news, saying that the Defense Contract Management Agency had approved its systems for estimating costs on the logistics support work.
KBR and several other Halliburton subsidiaries are emerging from bankruptcy proceedings related to asbestos litigation.
Company officials said recently that they will try to sell KBR.