A Defense Department auditor last week criticized Army managers responsible for overseeing a giant logistical contract with Halliburton Co., saying in a memo they have not been firm enough in seeking justification for $1.8 billion in expenses for work in Iraq and Kuwait.
The Aug. 16 memo, made public yesterday, said Halliburton subsidiary Kellogg Brown & Root Inc. has "not provided this basic supporting data" while the auditors had identified "significant unsupported costs" totaling about $1.8 billion -- 42 percent -- of $4.3 billion in bills reviewed by the Defense Contract Audit Agency.
The author, an audit official in Texas, urged officials at the Army Field Support Command, who oversee the logistical contract, to penalize the company by withholding 15 percent in payments until the billing disputes are resolved. "It is clear to us KBR will not provide an adequate proposal until there is a consequence," the memo said.
Rep. Henry A. Waxman (D-Calif.), one of the company's leading critics in Congress, released the memo yesterday. In an accompanying letter to Defense Secretary Donald H. Rumsfeld, Waxman cited earlier audits, saying the memo raises new questions about "whether Halliburton will continue to receive special treatment from the Defense Department."
"These government audits have found widespread, systemic problems with almost every aspect of Halliburton's work in Iraq, from cost estimation and billing systems to cost control and subcontract management," Waxman wrote. "The Defense Department has not responded appropriately to these findings."
Halliburton spokeswoman Wendy Hall said the company is being targeted for political reasons. She said it is using the same cost estimation procedures it has used successfully for years. She said the contract audit agency that wrote the memo "is advisory only and has no authority to determine the adequacy of our systems."
"This is all part of the normal audit process -- a process which is typically carried out in a much less public fashion," Hall wrote in an e-mail. "However, the environment in which we find ourselves today has brought an unprecedented amount of attention to these matters, and the facts have taken a backseat to opinions and agendas."
The memo was written last week as the Army waffled over whether to give Halliburton more time to offer documentation supporting bills they have issued for supplying food, housing and other troop services.
On Aug. 16, one day after a regulatory deadline to impose sanctions, Halliburton said the Pentagon had agreed they would get more time. On Tuesday, the company said an Army official had said they would in fact withhold payments. Then, after the company threatened to sue, the Army did a turnabout and asked Halliburton for information about the impact of any withholding, a document the company provided on Thursday evening.
Yesterday, Army officials issued a brief statement, saying they likely would make a decision about whether to withhold payments within two weeks.
The dispute is the latest trouble facing the company. Several government auditors have accused the company of overcharging for some services. Democratic lawmakers have made Halliburton a campaign issue, suggesting the company has been given special treatment because Dick Cheney served as Halliburton's chief executive before his election as vice president.
In the memo, the auditor said KBR's lack of information will continue to "result in significant delays in issuing our audit reports, significant unsupported costs" and other shortcomings that hinder "the Government's ability to negotiate contracts in a timely manner."
The memo said "KBR personnel have informed us they intend to provide additional supporting data during negotiations. We believe this approach is unacceptable."