Only hours after deciding to withhold some payments to Halliburton Co. because of questions about billing for its work in Iraq, the Army reversed itself yesterday and said it would give the giant contractor more time to justify its claims.
The decision capped two days of confusion over whether the Pentagon would withhold 15 percent of payments to Halliburton subsidiary Kellogg, Brown & Root Inc. under federal procurement rules that require contractors to provide clear justification for their bills.
On Monday, Halliburton announced that the Army would give KBR a third extension to provide the needed documentation, meaning it would continue to be paid in full. Early yesterday, the company said in a statement that the Army called and apparently reversed itself, saying that withholding on new invoices would begin today. Halliburton estimated that $60 million a month could be withheld, pending negotiations about the bills.
Then in the afternoon, officials at the Army Materiel Command -- which oversees the logistical services contract with KBR -- did another turnabout and decided not to withhold any payments.
Spokeswoman Linda Theis said senior Army officials had decided to review the contract more closely for the next five days, but she said no one told her why.
"I'll ask, but I'm not sure anybody will tell me," Theis said, adding that she's not sure who made the decision. "Let's just say it's breathing space."
Theis said Halliburton has received extensions because there are not enough people in the government or at Halliburton to review the many bills the company has submitted, in part because no one anticipated how much work they would need to account for.
"It was the pace. It was the magnitude of this contract," she said, adding that the Army is trying to be "fair and equitable."
Early in the day, Halliburton spokeswoman Wendy Hall challenged the legality of the decision to withhold payments and said in a written statement that the company would file papers in court seeking to have it overturned. "Halliburton is confident that the government action is not justified and expects that its legal arguments will be upheld in litigation," Hall's statement said.
The company later received a letter from the Army Materiel Command, requesting "additional information from KBR," Hall said.
"At this time," Hall said, "we understand the bills are currently being paid in full."
Hall said she did not understand the change.
Congressional Democrats have accused the Pentagon of going easy on KBR, which has received about $6 billion for work it has done in Iraq and Kuwait under the logistical services contract known as LOGCAP. Halliburton has also received at least $2.5 billion for helping Iraq rebuild its oil industry. Government investigators and Defense Department auditors have repeatedly raised questions about whether KBR overcharged for food, housing and fuel and kept proper records.
Rep. Henry A. Waxman (D-Calif.) has questioned whether Vice President Cheney, who was Halliburton's chief executive before reaching office, played any role in helping the company. Cheney's staff has derided such suggestions as politically motivated.
In response to a new Defense Department audit that described Halliburton's cost estimating system as inadequate, Waxman said last week that the Pentagon is not doing enough to hold the company accountable.
"The Bush administration is giving Halliburton special treatment yet again," he said in a written statement. "Even after eight critical audit reports by three different government agencies, the Pentagon is still waiving procurement rules and extending deadlines for Halliburton to submit accurate cost information."
Theis, the Army Materiel Command spokeswoman, dismissed suggestions that Halliburton is receiving special treatment.
Halliburton officials said that even if the government decides next week to withhold money from new invoices, it would not have a significant impact on the company's liquidity. That's because Halliburton would then withhold payments to subcontractors. "At the end of the day, we do not expect this will have a significant or sustained impact on liquidity," said Cris Gaut, Halliburton's chief financial officer.