WASHINGTON—Amid allegations of overbilling by top Iraqi contractor Halliburton and kickbacks to its employees, senior Defense Department officials vowed Thursday to get tough with the politically connected conglomerate.
In a contentious hearing by the House Committee on Government Reform, the Army Corps of Engineers' chief of civil works, Maj. Gen. Carl Strock, said that his agency last week terminated an oil supply contract with an inexperienced Kuwaiti firm hired by Halliburton that Democrats and whistleblowers said vastly overcharged for gasoline. However, the contract was temporarily reinstated because of a shortage of gasoline in Iraq.
The Justice Department, the inspectors general of the Defense Department and the State Department, and the Kuwaiti government are all looking into complaints of possible criminal corruption surrounding Halliburton contracts, officials acknowledged Thursday.
The Defense Department on Thursday released a stinging "flash report" dated Dec. 31, 2003, and a follow-up memo that was dated two weeks later by the Defense Contract Audit Agency, the Pentagon's chief financial watchdog. The agency charged that Halliburton, which once was run by Vice President Dick Cheney, has had such widespread problems justifying contract costs that it questions the firm's "ability to consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices."
The DCAA memos detailed hundreds of millions of dollars of costs—mostly to supply food for troops and gas for Iraq—that either weren't supported by documents or were based on estimates that turned out to be greatly inflated. Because Halliburton has a "cost plus" contract, in which it gets reimbursed for what it spends, plus a percentage of profit, that meant tens of millions of dollars of extra profit for Halliburton if auditors hadn't caught them, House Democrats said.
Two days after the DCAA memo, the Army Corps of Engineers awarded Halliburton a $1.2 billion oil contract. Strock said the Army Corps knew of the auditors' reservations as well as Halliburton's admission that two employees took up to $6.3 million in kickbacks, but decided to go ahead with the new contract because none of the charges had been proven so far.
This caused Democrats to cry corruption and Republicans to defend the Bush administration and, at times, Halliburton at the Thursday hearing.
"The administration and Halliburton keep putting out false and misleading information," said Rep. Henry A. Waxman, D-Calif., the ranking Democrat on the committee. "The whole thing does not smell right."
Despite finding a number of contracting problems with Halliburton, Defense Department Controller Dov Zakheim told Congress, "Contractor performance in Iraq has been neither perfect, but it has not been terrible."
Committee Chairman Tom Davis, R-Va., added, "By and large we've done a good job. But there are things that slip through. ... No company has been profiteering."
Davis and Zakheim both said that there's been ample oversight of Iraqi contracts, pointing out that nearly all the charges of financial improprieties were either dug up by the Defense Department's auditors or reported by Halliburton itself.
In statements issued Thursday, Halliburton accused Waxman of being overly selective in his reading of critical audits, but it thanked defense officials for their support in resolving outstanding contracting issues.
"We can take criticism when it is justified because we are our harshest critics," said Randy Harl, the president of the Halliburton subsidiary hired by the Defense Department. "It's the only way to improve. Criticism is not failure. We pledged to cooperate and we have fully cooperated with the DCAA and all of the regulatory agencies overseeing our contracts."
All seven senior Defense officials said under oath that there was no political pressure or special deals to help Halliburton get what could total $17.6 billion in defense contracts in Iraq.
Both the U.S. and Kuwaiti governments are looking into Halliburton's decision to hire Altanmia Commercial Marketing to move oil from Kuwait to southern Iraq. It cost the government $2.64 per gallon—twice what the Defense Department's energy office spent to move oil from the same place. House Democrats said they feared that Altanmia was hired because of its connections to prominent Kuwaiti government officials.
Davis said Halliburton "might be the victim" in that fuel contract.
Following the disclosure of the fuel-pricing disparity, the Kuwait Petroleum Corp., the supplier of both the Defense Department and Altanmia, said it would have sold gasoline directly to Halliburton.
A letter noting that offer was sent to the Army Corps, which misplaced it.
Waxman said the two-month delay before the government found the letter cost an extra $300 million.
On March 2, the Army Corps suspended the Altanmia contract, then reinstated it on March 4 for a week because Iraq was running low on oil. A new oil supplier has been found, but Strock said he couldn't say who it was and how much it was charging for oil.
Strock said the Army Corps and Halliburton had rushed into the gasoline contract because gas was running short in Iraq and the need "was urgent and compelling" and was a matter of safety for U.S. troops.
(c) 2004, Knight Ridder/Tribune Information Services.
PHOTOS (from KRT Photo Service, 202-383-6099): USIRAQ-HALLIBURTON