Documents Trace KBR Billing Problems
Wednesday, March 29, 2006
Halliburton Co. repeatedly overcharged the government and exhibited "profound systemic problems" under a $1.2 billion contract to restore oil services in Iraq, according to internal government documents released yesterday by one of the company's fiercest critics.
The documents, cited in a report by the staff of Rep. Henry A. Waxman (D-Calif.), depict government officials' increasing irritation with Halliburton subsidiary Kellogg Brown and Root Inc. as schedules slid, costs multiplied and the company balked at meeting demands for accurate cost estimates. Ultimately, contract overseers threatened to terminate the company's contract if it did not improve.
Pentagon auditors have challenged $45 million worth of company costs, out of $365 million in charges that were reviewed. Under the terms of its deal with the government, KBR earns its profit as a percentage of its costs.
In one case, the government's contracting officials reported that KBR attempted to inflate its cost estimates by paying a supplier more than it was due. In another, KBR cut its cost estimates in half after it was pressed on its true expenses. In a third, KBR billed for work performed by the Iraqi oil ministry.
"The government has made numerous attempts to work with KBR to bring their cost reporting procedures into minimal acceptable standards," a contracting officer wrote to the company in January 2005. He said that the company's "failure to deliver a useable, accurate cost report" was "endangering performance of the contract."
As the company's costs escalated and work fell behind schedule, federal officials in Iraq reported KBR was being "obstructive" toward officials trying to investigate what had gone wrong.
Melissa Norcross, a Halliburton spokeswoman, defended the company's performance under the oil contract, saying Waxman's report dredged up old issues that have already been resolved. Norcross pointed to a July report by the State Department that said Halliburton had been "satisfactorily addressing most of the issues" raised in previous evaluations.
She labeled the Waxman report "partisan" and said it does not take into account the numerous changes the government requested once work was already underway.
"After two years and from thousands of miles away, it is easy to criticize decisions and actions that were based on urgent mission requirements and severe time constraints," Norcross said in a statement.
KBR, the Pentagon's largest contractor in Iraq, has often been criticized for its work, including one deal for supporting U.S. troops with food, laundry and mail services. Yesterday's report was the first to look at the competitively awarded contract from 2004 under which KBR worked to restore oil services in the southern part of Iraq.
That contract was a follow-up to a no-bid 2003 deal that gave KBR that responsibility nationwide. The Pentagon's internal audit division -- the Defense Contract Audit Agency -- had warned the Army Corps of Engineers to contact auditors before negotiating with the company on the new contract because of "significant deficiencies" in KBR's ability to estimate its costs. The DCAA later said the Corps never did so.
"Halliburton has pulled off the impossible: it has actually done a worse job under its second Iraq oil contract than it did under the original no-bid contract," Waxman said in a statement. "This new round of overcharges and dismal performance would have been avoided if the Bush Administration had listened to its own auditors."
Halliburton has said in the past it believes criticism of its performance in Iraq is politically motivated, in large part because Dick Cheney was the firm's chief executive before he became vice president.
A Defense Department spokesman had no immediate comment on the Waxman report.