Halliburton accused of inflating Iraq costs

By SETH BORENSTEIN
Knight Ridder Newspapers

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Democrats in the House of Representatives, who are feuding with House Republicans over whether the spending should be publicly aired at a hearing today, released signed statements yesterday from five ex-Halliburton employees.

Those former employees contend that the politically connected firm:

• Lodged 100 workers at a five-star hotel in Kuwait for a total of $10,000 a day while the Pentagon wanted them to stay in tents, like soldiers.

• Abandoned $85,000 trucks because of flat tires and minor problems.

• Paid $100 to have a 15-pound bag of laundry sent for cleaning to Kuwait as part of a million-dollar laundry contract. The price for cleaning the same amount of laundry in war-torn Iraq was $28.

• Spent $1.50 a can to buy 37,200 cans of soda in Kuwait, about 24 times higher than the going price.

• Knowingly paid subcontractors twice for the same bill.

The latest accusations center on whether Halliburton properly keeps track of its bills from smaller subcontractors, Pentagon auditors said yesterday. Halliburton would have gained by spending extra money, because its contract called for a profit that was a percentage of expenditures.

For example, a Halliburton subsidiary, KBR, has a multibillion-dollar, multiyear logistics and supply contract that allows it to add on a profit of 1 to 2 percent and pass along all costs to the government. So far, the Army has agreed to pay KBR up to $4.55 billion for Operation Iraqi Freedom, for a profit of up to $91 million.

Halliburton is already under fire for allegations of overcharging the Pentagon for fuel and soldiers' meals.
 
In January, KBR announced it would will pay the Pentagon $6.3 million for possible overcharges by a subcontractor accused of giving kickbacks to supply food and services to U.S. soldiers in Iraq. A month later, KBR said it would pay back $27.4 million and defer billing of $140 million in meals for U.S. forces in Iraq and Kuwait over a discrepancy between the number of meals ordered and those actually served.

The 36-page report by the Defense Contract Audit Agency said KBR had a billing system that was "inadequate," had numerous deficiencies and billing misstatements, and that KBR didn't follow laws and regulations relating to spending and record keeping.

Its contracting practices are so bad, the auditors said, that KBR shouldn't be allowed to bill the Pentagon directly without the government poring over every detail in advance.

Statements by the whistle-blowers — five of whom were identified — and the government's audit report "portray a company and a contracting environment that has run amok," Rep. Henry Waxman, D-Calif., wrote in a letter yesterday to Government Reform Committee Chairman Tom Davis, R-Va.

Halliburton disputed the auditor's report and said Waxman was politically motivated.

Wendy Hall, a company spokeswoman, said Waxman's allegations do nothing "to feed a single member of our military, create a single unit of housing, repair a single oil well or supply a single piece of material for reconstruction."

Hall said Halliburton continues "to be a target in this presidential election year. This is the 35th news release about Halliburton from the congressman's office since March 2003."

One former Halliburton subcontracting manager, Marie deYoung, said in her signed statement that she had seen "significant waste and overpricing."

"Halliburton rarely collected adequate information from subcontractors to justify payment of invoices. When I attempted to properly verify invoice terms before setting up payment authorization, I was chastised," said deYoung, a former Army captain and chaplain who resigned from the company last month.

According to deYoung, Halliburton's financial staff lives at the five-star Kempinski Julai'a Hotel and Resort in Kuwait. "For a three-month period, the Kempinski hotel charged almost $1 million to house 100 Halliburton employees. By comparison, it costs less than $200,000 a year to lease tents that could house 400 soldiers. ... The military requested that Halliburton move into tents, but Halliburton refused."

Hall didn't respond to the specific charges made by deYoung and other employees, but said, "There are clear inaccuracies in these assertions. We take any charges of improper conduct seriously."

More significant than the allegations of high prices is the Pentagon audit's finding that Halliburton isn't watching or controlling what its suppliers charge, said Pete Singer, a Brookings Institution researcher.

The reform committee won't hear the whistle-blowers testify because Republicans "simply had not had the time to properly flesh out, corroborate, investigate the many and wide-ranging claims that these individuals have made," said Dave Marin, a spokesman for Rep. Davis. If the whistle-blowers turn out to be legit, he said, the committee may schedule "a follow-up hearing in the summer months."

In his letter, Waxman charged that since House Republicans won't let the whistle-blowers testify today, the congressional committee is "not fulfilling its obligation to protect the taxpayer from waste, fraud and abuse."

Vice President Dick Cheney headed Halliburton until he became a candidate for vice president, but he has repeatedly said he has no connection to the awarding of government contracts to the company.

Material from The Associated Press is included in this report.