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Auditors Questioned $212.3 Million in Charges From KBR

Critic of Halliburton Contracts Releases Report, Urges Hearings

By Charles R. Babcock
Washington Post Staff Writer
Tuesday, April 12, 2005; Page E02

Pentagon auditors have questioned $212.3 million -- about 13 percent -- of $1.69 billion that a Halliburton Co. subsidiary charged the government over the past few years, mostly for importing fuel to Iraq under a no-bid contract.

Rep. Henry A. Waxman (D-Calif.), a longtime critic of Halliburton's large contracts supporting U.S. troops in Iraq, released summaries yesterday of five audit reports that the Defense Contract Audit Agency did of work performed by Kellogg Brown & Root in 2003 and 2004. Four of the five reports covered contracts to provide fuel. In one case, the auditors challenged 47 percent of the $28.7 million in spending.

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In one update of an audit report that Waxman released earlier, the DCAA reduced the questioned costs from $108 million to $86.1 million out of a work order now valued at $887.3 million. In the reports on fuel imports, auditors criticized KBR for not negotiating new prices with a vendor in Kuwait after the initial rush when the war started. They also questioned why KBR agreed to pay subcontractors in Turkey more than the negotiated price for fuel after prices in the market rose suddenly.

Waxman urged Rep. Christopher Shays (R-Conn.), chairman of the House Government Reform subcommittee with jurisdiction on the issue, to hold hearings on what he called the "mismanagement" of the Development Fund for Iraq, which paid for much of the KBR work.

A subcommittee staff member said Shays plans such hearings but first is "following the money" by holding hearings on the oil-for-food program, under which the United Nations allowed former Iraqi dictator Saddam Hussein to sell oil worth billions of dollars. The money was supposed to go to feed the Iraqi people during international economic sanctions, but recent investigations found that money also was sidetracked by the regime for kickbacks and payoffs. The U.N. later gave billions in oil-for-food cash to the DFI.

Halliburton spokeswoman Beverly Scippa said in an e-mail that the questioning by auditors "is all part of the normal contracting process." She said Waxman "fails to take into account" that KBR was performing an urgent mission in a wartime environment. It also was "simply unreasonable" for the auditors to compare what it cost KBR to provide fuel needed in a time of shortages in Iraq, she said, with lower prices the military was able to negotiate months later.

Waxman said Congress still has not seen audits covering about $800 million of KBR's work under the no-bid contract to supply fuel and restore Iraq's oil fields.

There also have been questions about KBR's performance under a separate giant logistics contract to provide troops in the Middle East with food, shelter and other supplies. Auditors found $1.8 billion in "unsupported costs" in $10.5 billion in billings from that contract, which KBR won by competitive bid.

The Army decided in February to continue paying Halliburton in full, plus bonuses, under that logistics contract, despite a recommendation from auditors that some funding be withheld.

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