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Cheney's ex-firm blasted over Iraq Auditors: Halliburton violated contract rules
by SETH BORENSTEIN FREE PRESS WASHINGTON STAFF
Detroit Free Press
March 11, 2004

WASHINGTON -- Halliburton, the company awarded nearly $6 billion in government contracts to rebuild Iraq, significantly and systematically violated federal contracting rules by providing inaccurate and incomplete information about its costs, according to a special report by Defense Department auditors.

Yet 16 days after that Dec. 31 report and after a second warning by Pentagon auditors, the Army Corps of Engineers gave Halliburton, formerly headed by Vice President Dick Cheney, a new $1.2-billion contract.

In a memo to congressional colleagues, U.S. Rep. Henry Waxman, D-Calif., said the auditors found that a Halliburton subsidiary gave unreliable figures in a $2.7-billion proposal to provide logistics for troops in Iraq. Specific problems cited by the Defense Contract Audit Agency include Halliburton's failure to reveal it fired two subcontractors responsible for $1 billion worth of food service to U.S. forces, Waxman's memo said.

The eight-page memo summarizing the auditors' report was prepared before a congressional hearing today on $9 billion in federal contracts in Iraq. Waxman is the senior Democrat on the House Government Reform Committee, which oversees government contracting.

The suggestion that a company with ties to the Bush administration may have profited excessively from the war in Iraq could compound the administration's growing difficulties over the war. Critics have accused Cheney and other top administration officials of exaggerating the threat that Iraq posed to gain support for the war.

Administration officials say Cheney -- who resigned as head of Halliburton to become George W. Bush's running mate in 2000 -- has no role in awarding Pentagon contracts.

The Pentagon audit "depicts a situation where costs are virtually uncontrolled and Halliburton can overcharge the taxpayer by phenomenal sums," Waxman wrote. "Given our nation's mounting debt and the escalating costs in Iraq, all members of Congress should be extraordinarily concerned about this new evidence of waste, fraud and abuse in contracting in Iraq."

Halliburton, which has received $5.8 billion in Iraq contracts, has repeatedly denied any wrongdoing. Company spokeswoman Wendy Hall said Wednesday, "We are disappointed, once again, that selective portions of audit reports have been released publicly. . . . Releases of partial reports are inappropriate because the true and complete story cannot be conveyed. In fact, the release of these reports could violate established federal policy."

In its internal investigation, released earlier this year, the Houston-based oil-and-engineering conglomerate found significant problems with its cost estimates.

Halliburton told federal securities regulators Monday it expects a formal Pentagon inquiry into alleged deficiencies in its procurement procedures in Iraq and Kuwait. The company told the Securities and Exchange Commission it has credited $36 million to the Defense Department and delayed billing the Pentagon for an additional $141 million because of the problems.

Senior Defense Department officials declined to comment on Waxman's memo Wednesday.

At today's hearing, House Democrats will try to make public the so-called flash report of Dec. 31 by the Pentagon auditors, but that requires a majority of votes on the oversight committee, which is controlled by Republicans.

In the memo, Waxman quotes the report as saying there were "significant deficiencies" in the way Halliburton estimated costs. The $2.7-billion proposal from Halliburton "did not contain current, accurate and complete data regarding subcontractor costs," according to Waxman's excerpt of the report.

Halliburton, according to Waxman's summary, told the government it would cost $1 billion to provide food for U.S. troops but based that figure on two subcontracts it already had canceled. Hall, the company spokeswoman, said Halliburton had told the government of the cancellations.

When the auditors gave Halliburton a chance to respond, the company told the agency the problem wasn't systemic but was a unique situation, according to Waxman's memo. However, Waxman wrote that the audit agency dismissed that explanation, saying it was "not a onetime occurrence; it is systemic."

According to the memo, less than two weeks after the agency's flash report, the auditors wrote to the Army Corps of Engineers, saying that Halliburton's systemic problems "bring into question" the company's "ability to consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices."

The auditors asked the corps to consult with them before giving Halliburton another contract, but the corps ignored the request. On Jan. 16, it gave Halliburton a $1.2-billion contract to restore oil services to southern Iraq, according to Waxman.

Halliburton is also under investigation by the Defense Department for overcharging the government for supplying gasoline to U.S. military personnel and others in Iraq.

Contact SETH BORENSTEIN at sborenstein@krwashington.com. The Associated Press contributed to this report.

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