Halliburton unscathed by overcharge flap

Asia Times ^ | 12.20.03 | Hussain Khan

[Steve_Seattle]

There's a good article in today's "National Review Online" (see link on Drudge) that explains the whole thing. Basically, the Army ordered Halliburton to buy oil from Kuwait in order to expedite its delivery to the southern city of Basra, which was in near-riot status due to a critical fuel shortage. There was only one dealer authorized by the Kuwaiti government, so Halliburton had no choice but to pay their higher price, which the dealer claimed was necessitated by increased costs to deal with security threats. There was no "price-gouging" by Halliburton. This did not stop CBS from suggesting that very thing a couple of days ago on "The CBS Evening News."

[Steve_Seattle]

"Did you folks see the story buried in the back of the Wash Times yesterday, clearing Halliburton of any charges? Even the Times didn't consider it worthy of headlines. Go figure!"

No, I only saw the "Halliburton-Cheney-Bush-price-gouging" version of the story which CBS trumpeted as yet another example of "whether you're home or abroad, it's good business to be a friend of the Bush administration."

[Coop]

Yeah, I must have missed this leading headline. ;-)

http://www.washtimes.com/business/20031217-091231-2158r.htm

Contract overrun said not criminal

From combined dispatches
Halliburton Co. does not appear to have deliberately overcharged the United States on its reconstruction contract in Iraq, Pentagon Comptroller Dov Zakheim said yesterday.

A Pentagon audit found Halliburton may have overcharged as much as $61 million for fuel costs on its no-bid government contract in Iraq, an award worth as much as $7 billion to the world's second-largest oilfield-services company.

"From what I have seen so far, from what the DCAA leadership have told me, I have no basis whatsoever to see anything nefarious," Mr. Zakheim said.

The DCAA is the Pentagon's Defense Contract Audit Agency. Halliburton didn't profit from the potential overcharges, and the government and the company hope the question can be resolved by early February, he said.

Democratic lawmakers, including presidential candidates Rep. Richard A. Gephardt of Missouri and Sen. Joe Lieberman of Connecticut, have questioned Halliburton's Iraq work and its link to the Bush administration through Vice President Dick Cheney, who was the company's chief executive from 1995 to 2000.

The potential overcharge appears to stem from an antiquated accounting and cost-estimating system, and the company has assigned a 25-person team to correct that within "the next couple of months," Mr. Zakheim said.

Halliburton's KBR unit, formerly known as Kellogg, Brown & Root, has been paid $866 million on the oil reconstruction contract and "$61 million is actually the only part that is being questioned," Mr. Zakheim said.

KBR has earned a base fee of 2 percent, or $17 million, on the amount paid to date — profit that would be wiped out if the DCAA concludes the company is required to pay back the money.

"If the auditors conclude that they were overpaid — and that has not been concluded yet, I have to underscore that — then it's going to be the company that's out the money, not the taxpayer," Mr. Zakheim said.

Rep. Henry A. Waxman, a California Democrat who is the most outspoken critic of the Halliburton contract, remained unconvinced.

"Accounting errors don't explain why the administration is paying $2.64 per gallon for gasoline that should cost one dollar and that is resold to Iraqis for a nickel," Mr. Waxman said.

"There's no question that the taxpayer is getting gouged on the gasoline contract. We need a full investigation to find out who is responsible and how this could have happened," he said.

In trading on the New York Stock Exchange, Halliburton shares rose 46 cents to close at $25.60.

[reagandemocrat]

I agree, however, Bush could have easily avoided the appearance of impropriety by putting the contract out for bid; the lowest bidder, best interests of the nation, etc. Instead it LOOKS like a sweatheart deal.

[alloysteel]

It was a SUBSIDIARY of Halliburton, Kellogg-Brown-Root, that was doing the bid work. The Democrats should be careful not to turn over too many rocks on this one, as KBR was a big favorite in the portfolios of a number of influential Democrat party contributors.

And yes, the work was put out at bid, but only one vendor conformed fully with the requirements. One could argue that the specifications were purposefully written so narrowly that no competitive bid by anyone else was possible, but that would imply that the revolving door between defense contractors and the Department of the Army was leading to much too cozy an arrangement.

[lepton]

The Kuwaiti robber barrons overcharged Halliburton and Halliburton didn't catch on to the fact until they had added their percentage and billed the gov.

I don't know about the way you put the "and didn't catch on until" part, but as stated repeatedly, Halliburton was given a specific list of contractors to accept bids from (the current CEO says 4 Kuwaiti companies). The "extra" charges went to the Kuwaitis, not Halliburton - even according to the audit. ...So the actual complaint against Halliburton isn't that they overcharged the government, but rather that they failed to get as good a deal as the auditors thought they should have.

[lepton]

has been paid $866 million on the oil reconstruction contract and "$61 million is actually the only part that is being questioned," Mr. Zakheim said.

KBR has earned a base fee of 2 percent,

Assuming that the overpayment is real rather than just theorhetical (a mental exercise in how things might have been done if done perfectly), Halliburton would have received $1.220 Million extra.

[lepton]

I agree, however, Bush could have easily avoided the appearance of impropriety by putting the contract out for bid; the lowest bidder, best interests of the nation, etc. Instead it LOOKS like a sweatheart deal.

Halliburton received a no-bid bridging contract, not the long-term one. This type of contract is when the government has an immediate need for something to be done in less than the time frame for the bidding proccess to be followed. IOW, Likely there would have been none of the nearly 200 million gallons of fuel being brought in for half a year or more. Would the screaming have been any less?

It has been stated without refutation that for the overall contract that there were precisely two corporations in the world with the contacts and infrastructure to implement the needed services immediately - one being Halliburton, and the other a French corporation.

[lepton]

Halliburton received a no-bid bridging contract, not the long-term one.

Would be better worded as: Halliburton received only a bridging contract, not the long-term one, as no-bid.

[Crow357]

Yeah, most of my coworkers believe that Haliburton is run by Satan himself and Cheney and Bush are nothing more than Hitler in disguise.

[reagandemocrat]

Thanks..that helps.

RD