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Pentagon Audit Questions Halliburton's Costs in Iraq

By Griff Witte
Washington Post Staff Writer
Tuesday, March 15, 2005; Page A04

Pentagon auditors found more than $100 million in questionable costs in one section of a massive, no-bid Halliburton Co. contract for delivering fuel to Iraq, according to a summary of their report released yesterday by congressional Democrats.

The audit faulted Halliburton subsidiary Kellogg Brown & Root Inc. for providing cost data that did not match its accounting records, and for failing to negotiate lower prices for fuel from a Kuwaiti supplier. The audit also described as "illogical" a case in which KBR reported it had purchased liquefied gas for $82,100, and then spent $27.5 million to transport it.

Rep. Henry A. Waxman (D-Calif.), above, pressed the administration to publicize all the audits and to recover contract overcharges. (Alex Wong, Meet The Press--AP)

The Defense Contract Audit Agency, which produced the audit, had reported in December 2003 that Halliburton may have overcharged the government by up to $61 million by buying more expensive fuel from Kuwait rather than from Turkey.

The audit summary, written in October 2004 but withheld from public release, covers one out of 10 sections from a $2.5 billion contract under which Halliburton was tapped to deliver fuel, fight oil well fires and repair oil facilities in Iraq after the U.S.-led invasion in the spring of 2003. Of the $2.5 billion, approximately $1.6 billion came from Iraqi oil proceeds and the rest was funded by U.S. taxpayers.

Halliburton, where Vice President Cheney served as chief executive from 1995 to 2000, has come under persistent criticism for its handling of several Iraqi reconstruction contracts. For example, auditors turned up $1.8 billion in "unsupported costs" in a $10.5 billion Army logistics contract that KBR won on a competitive bid. Despite those findings and a recommendation to withhold some of the payments, the Army decided last month to continue paying Halliburton in full, plus performance bonuses.

Reps. John D. Dingell (D-Mich.) and Henry A. Waxman (D-Calif.), who made a summary of the fuel audit public, called on President Bush to release audits for the other nine sections of Halliburton's no-bid contract.

"[T]he Administration has withheld these audits from Congress for months, and Halliburton has repaid nothing under this contract," they wrote. "We would like to know when and how you plan to recover the overcharges from Halliburton and restore them to U.S. taxpayers and the Iraqi people."

White House spokesman Trent Duffy said he had not seen the letter or the audit summary as of late yesterday afternoon. But he said the administration is committed to reclaiming misspent funds. "The president has said repeatedly that if there were any improper payments, the government is going to get its money back," Duffy said. Pentagon spokesperson Lt. Col. Rose-Ann Lynch said the investigation "is ongoing, and we do not discuss ongoing investigations."

Carol Sanders, a spokeswoman for the Army Corps of Engineers, which oversaw the fuel contract, said there have been more recent versions of the audit than the one released yesterday. She declined to comment on their substance. "[W]e are still studying the audits preparatory to entering into final negotiations with [KBR]," she said.

Halliburton spokesperson Wendy Hall criticized the summary audit that was released, saying in a statement that the "report fails to take into account the fact that KBR performed an urgent mission at the Army's request and that the mission took place in a war-time environment."

Hall said KBR delivered "vital services for the Iraqi people at a fair and reasonable cost given the circumstances."

According to the audit summary, KBR negotiated fuel prices with Kuwaiti supplier Altanmia during a very short period in the spring of 2003, and then largely stuck with those prices for nearly a year even though lower prices may have been available. "It is not reasonable to use prices negotiated in only a few days, under extremely difficult circumstances, for the entire period of performance," the auditors concluded.

On Capitol Hill yesterday, Richard Jones, a former U.S. ambassador to Kuwait, acknowledged sending an e-mail in which he pushed for KBR to sign a deal quickly with Altanmia to meet a rising demand for fuel in Iraq. Jones also testified the embassy had received reports from Altanmia officials that Halliburton executives were demanding kickbacks. Jones said those reports were passed along to Pentagon investigators.

Staff researcher Madonna Lebling contributed to this report.

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