Saturday, April 16, 2005


By William Fisher

The Halliburton Corporation, already the Iraq war’s poster child for ‘waste, fraud and abuse’, got a double-whammy this week. A new report from the U.S. State Department accused the company of “poor performance” in its $1.2 billion contract to repair Iraq's vital southern oil fields. And a powerful California congressman charged that new Department of Defense audits showing additional over-charges totaling $212 million were concealed from United Nations monitors by the Bush Administration.

The new over-charges bring to $2 billion, or 42 per cent of the contract amounts, the total of questionable billings from Halliburton.

Rep. Henry Waxman, the top Democrat on the House of Representatives Subcommittee on Government Reform, charged that “both the amount of Halliburton's overcharges and the extent of the information withheld from the auditors at the UN’s International Advisory and Monitoring Board (IAMB) were much greater than previously known.”

Waxman said the Defense Contract Audit Agency (DCAA), which monitors all Defense Department contracts, had identified Halliburton overcharges and questionable costs of totaling $212.3 million -- double the total amount of known overcharges under Halliburton's Iraq oil contract. In one case, Waxman said, the overcharges exceeded 47% of the total value of the task order.

But DOD – at Halliburton’s request – withheld the new amount from the International Advisory and Monitoring Board (IAMB), the U.N. audit oversight body for the Development Fund for Iraq (DFI), Waxman charged.

In letters to government auditors, Halliburton subsidiary KBR explained that it redacted statements it considered proprietary or "factually inaccurate or misleading" and gave consent for the release of the audits to international auditors "in redacted form." The Administration then sent the heavily redacted report to the IAMB overseeing the DFI.

Rep. Waxman’s letter to Subcommittee Chairman Shays says, “The extensive redactions in the audit were apparently made at the specific request of Halliburton…the withholding of this information is highly unusual and raises serious issues. The evidence suggests that the U.S. used Iraqi oil proceeds to overpay Halliburton and then sought to hide the evidence of these overcharges from the international auditors.” Waxman also renewed his request that the Subcommittee hold hearings on the Administration's “mismanagement of the Development Fund for Iraq”.

Previously, Waxman disclosed that DOD auditors found $108 million in fuel-related overcharges by Halliburton for work in Iraq under one of several Halliburton task orders for the importation of fuel into Iraq. He also revealed that, although Halliburton was paid in significant part from Iraqi oil proceeds in the DFI, the Administration — acting at Halliburton’s request — concealed these overcharges from the international auditors charged by the United Nations with monitoring the expenditures from the DFI, Waxman alleges.

In these new audit reports, he says, “extensive additional information has been withheld by the Administration from the IAMB. A review of these audits shows that references to overcharges and other questioned costs were blacked out over 450 times in the versions of audits sent to the IAMB.”

Rick Blum of advocacy group ‘’, said, “Once again, the secrecy system fails us. They wouldn't have done it if they thought anyone cared or would find out. If the public had known about this earlier, we could stop it, better protect our troops, and better use our taxpayer dollars to make our families safer. This should be a wake up call to ensure more openness to strengthen our national defense.”

And Scott H. Amey,General Counsel of the Project on Government Oversight, a non-partisan government watchdog, declared, “DCAA’s audit reports document a total of approximately $2 billion (approximately 37% of the total proposed value of the contracts) in questioned, unresolved, or unsupported costs. If a taxpayer was able to support only 63% of their tax-return, he or she would be brought to justice. In the case of Halliburton, however, the government continues to let it slide.”

The State Department’s report focused on Kellogg, Brown & Root (KBR), the Halliburton subsidiary contracted to repair Iraq's southern oil fields.

The report does not provide detail about what it called “poor performance and excess spending”, but it says that the American Embassy had issued a "Cure Notice," a threat to terminate the contract unless Kellogg, Brown & Root replaced some senior managers. It says the government remains dissatisfied.

As a consequence, one of KBR’s competitors, Parsons Corporation, has been asked "to execute some of the remaining work" in the south, originally meant for KBR. KBR has previously been criticized for excess spending in its multibillion-dollar contract to provide logistical support for the military and in an earlier, $2.2 billion contract for oil repairs and fuel imports that was granted secretly as the Iraq invasion began. KBR won the contract to work on northern oil fields.

The Embassy has reallocated an additional $832 million in planned spending away from huge projects managed by American companies toward smaller repairs using local businesses and the training of Iraqis to maintain power and water systems.

Halliburton has attributed its slow progress to attacks by insurgents, years of neglect and lack of investment in the country’s oil facilities, and delays in repairs. The State Department report says Iraq's oil output of 2.1 million barrels a day in February was lower than it was last fall.

Halliburton – of which Vice President Dick Cheney was formerly chief executive officer -- is the largest single contractor in Iraq. The Pentagon has already awarded the company contracts worth up to $18 billion for its work in Iraq. Many of them were no-bid contracts that drew widespread criticism on Capitol Hill and in the press.

The company says it performed well under difficult circumstances in the aftermath of the invasion of Iraq and that cost disputes "are part of the normal contracting process." But former Halliburton employees have alleged intentional and systemic waste.

Lower-than-expected oil exports are exacerbating the Iraqi government's budget deficit, which the report estimates could reach $5 billion this year. A quarterly update on Iraqi reconstruction that was delivered to Congress last week.

A former Halliburton employee, Marie deYoung, audited accounts for Halliburton subsidiary KBR. She claims there was no effort to hold down costs because all costs were passed on directly to taxpayers. She repeatedly complained to superiors of waste and fraud. The company's response, according to deYoung was: "We can be as dumb and stupid as we want in the first year of a war, nobody’s going to care."

The former Army chaplain produced documents detailing alleged waste even on routine services: $50,000 a month for soda, at $45 a case; $1 million a month to clean clothes — or $100 for each 15-pound bag of laundry.

"That money could have been used to take care of soldiers," she said.

Another former employee, Mike West, says he was paid $82,000 a year to be a labor foreman in Iraq, but never had any laborers to supervise. "They said just log 12 hours a day and walk around and look busy," he said.


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