Army Plan Lets Halliburton Keep Disputed Payments

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Army Plan Lets Halliburton Keep Disputed Payments

By NEIL KING JR., Staff Reporter, The Wall Street Journal

www.wsj.com

The U.S. Army, in what could be the final twist in a complicated and drawn-out controversy, is laying the groundwork to let Halliburton Co. keep several billion dollars it was paid for work in Iraq that Pentagon auditors say is questionable or unsupported by proper documentation.


The Army has acknowledged that the Houston-based company might never be able to account properly for some of its Iraq work, and has hired a consulting firm to estimate what Halliburton's services "should cost." According to Pentagon documents and internal memorandums, that estimate will serve as the basis for "an equitable settlement" under which the Pentagon could drop many of the claims its auditors have made against the company's Kellogg Brown & Root unit, which has done the company's Iraq work. The documents were reviewed by The Wall Street Journal.

In one internal communication distributed within the Army, Brig. Gen. Jerome Johnson, head of the Army's Field Support Command, called the move to hire the consultants the only way to resolve the dispute between Pentagon auditors and the Halliburton unit. "If supporting documentation just does not exist, we must have an equitable solution to declaring an acceptable cost level and moving forward," he wrote. "It would be totally inappropriate and unfair of us to disallow all costs when, in the fog of the contingency, KBR did not obtain sufficient supporting documentation." But some disgruntled Pentagon officials describe the effort to broker an outside settlement with KBR as unusual in a contract of this magnitude. The company has taken heavy criticism from inside the Defense Department and from Congress for its accounting practices in Iraq.

KBR so far has billed about $12 billion in Iraq; almost $3 billion of that remains in dispute. Pentagon records show that $650 million in Halliburton billings is deemed "questionable," a term government auditors use when they see strong evidence of overcharges or contracting irregularities. Another $2 billion is considered "unsupported," meaning that KBR remains unable to provide sufficient paperwork. An Army spokesman said the Army had established two teams, which include employees of the consulting firm, to determine "fair and equitable costs" of the Halliburton work. He said the teams are reviewing information and intend to determine those costs "while ensuring KBR's continued effectiveness in support of our field operations." The Army aims to settle the matter by March.

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