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Iraq contract: Halliburton admits faulty pricing

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WASHINGTON (AP) -- Pentagon auditors found a Halliburton Co. subsidiary gave faulty cost estimates on a $2.7 billion contract to serve American troops in Iraq and Kuwait, and company officials acknowledged making mistakes, Defense Department documents show.

The estimate problems included a failure to tell contract managers that Halliburton had terminated two subcontracts for feeding troops, which affected costs on $1 billion worth of that work, the Defense Contract Audit Agency found.

Halliburton also did not tell contract managers it had already awarded subcontracts worth $141.5 million for work it said would cost $208.8 million, the auditors found.

William F. Daneke, a manager for Halliburton subsidiary KBR, wrote to the DCAA December 4 to acknowledge the company did not give current, accurate and complete cost data in its October 7 spending proposal.

"There are many excuses and reasons available -- but -- in the end, KBR did not include the most current data in our proposal," Daneke wrote.

The pricing issue is just one of several problems with Halliburton contracts in Iraq. Both the Pentagon and Justice Department have launched criminal investigations of the company, formerly headed by Vice President Dick Cheney.

Halliburton's problems include:

An alleged kickback scheme that prompted Halliburton to fire two workers and reimburse the Pentagon $6.3 million.

Possible overcharging for food services which Halliburton reimbursed the Defense Department for nearly $30 million. Halliburton has set aside $141 million to pay other possible reimbursements.

--A separate DCAA audit which accused KBR of overcharging by $61 million for gasoline delivered to serve the civilian market in Iraq last year. Halliburton has said the charges were proper.

Democratic critics say Halliburton is an example of war profiteering by companies friendly to the Bush administration. Company and administration officials say politics had nothing to do with Halliburton's contracts in Iraq.

Cheney's office says he severed relations with Halliburton when he ran for vice president in 2000.

Halliburton is aggressively defending itself, running a series of television ads saying its critics are politically motivated.

In a conference call with Wall Street analysts Friday morning, Halliburton executives repeated their complaints and said they were confident the investigations would exonerate Halliburton.

"I don't expect that we're going to get fined. We haven't done anything wrong," said Bert Cornelison, Halliburton's executive vice president and general counsel.

One of those critics, Democratic Rep. Henry Waxman of California, first disclosed the cost estimate problems in a memo to colleagues Wednesday.

Halliburton criticized Waxman on Thursday, issuing a news release calling the congressman's memo incomplete and misleading. In the conference call, Cornelison complained that Waxman could say anything about the company because of his protection against being sued for libel as a congressman.

But the KBR letter released by the Pentagon contradicts one of Halliburton's arguments.

Quoting KBR President Randy Harl, the Halliburton statement said: "A closer examination of KBR's response to the DCAA audit would show that KBR disclosed that vendors were terminated by KBR for default. Without all of the facts, it is inappropriate to criticize KBR."

Daneke's letter, however, admits KBR did not tell the Pentagon about the terminated subcontracts until after DCAA challenged the company's October submission.

The Halliburton officials on the conference call did not address the discrepancy and did not take questions from reporters.

The DCAA audit found a $67.3 million difference in what KBR agreed to pay its subcontractors and what it tried to charge the government. Daneke's letter said more current figures showed that discrepancy was actually $37 million.

Daneke told the auditors that the problems were not a systematic failure by KBR.

"This was a unique situation due to the significant cost, amount of data and volume of effort" in the proposal, Daneke wrote.

The Pentagon auditors disagreed. Other problems included KBR's overstating the numbers of troops it expected to feed.

At one site, for example, KBR told the military it planned to feed 4,800 troops. Auditors found that KBR's subcontract called for feeding 3,800 troops, however. The discrepancy at that site alone would account for $6.4 million extra for KBR, the auditors wrote.

In another example, KBR asked the military for $43.3 million to feed troops at a site labeled C-3. The company's subcontract for the same site was only $12.8 million, however, the auditors wrote. That's a difference of $33.5 million.

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