Army Will Pay Most of Halliburton Subsidiary's Costs

The U.S. Army Corps of Engineers is reimbursing a Halliburton subsidiary for almost all disputed charges from a no-bid contract to repair equipment and supply fuel in Iraq. Pentagon auditors had questioned $250 million in charges from Kellogg Brown & Root, but the Army now says it will penalize the company $10 million.

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The U.S. Army is reimbursing a subsidiary of Halliburton for nearly all the disputed charges in a controversial contract in Iraq. The decision comes after the government's own auditors questioned about $220 million dollars worth of bills. NPR's Frank Langfitt reports.

FRANK LANGFITT reporting:

Around the beginning of the war, Halliburton received a giant no-bid contract to truck fuel into Iraq. Government auditors later found that in some cases, Halliburton subsidiary, Kellogg, Brown & Root or KBR had paid triple the going rate for fuel. The contract became a big political issue because Halliburton's former CEO was Vice President Dick Cheney.

The U.S. Army has decided to pay all but $10 million of the company's disputed charges. The Army Corps of Engineers noted the dangerous security situation in Iraq and KBR's need to buy fuel from a Kuwaiti government approved firm. Halliburton spokeswoman Cathy Mann said the decision vindicated the company.

Ms. CATHY MANN (Halliburton Spokeswoman): KBR has now demonstrated that it delivered this vital fuel for the Iraqi people at a fair and a reasonable cost given the circumstances. At a time when neither government agencies nor other companies could or would have delivered, KBR faced the challenges and fulfilled this urgent mission.

LANGFITT: But critics for the way the contract was handled see it differently.

Professor CHARLES TIEFER (Professor of government contracting, University of Baltimore Law School): This seems like a tremendous victory by Halliburton over the taxpayers.

LANGFITT: That's Charles Tiefer, professor of government contracting at the University of Baltimore Law School. Tiefer said it was very unusual for the government to reject so many questions raised by its own auditors.

Prof. TIEFER: These are not outside critics of the government. These, they're like the IRS's auditors. They're the auditing branch that's used on defense contracts.

LANGFITT: The Army sided with KBR about 95 percent of the time. Peter Singer, a Senior Fellow at the Brookings Institution says that's not typical.

Mr. PETER SINGER (Senior Fellow, Brookings Institution): When you compare that to the averages, it's way off, it's off the scales. The averages, in the past couple years, have been roughly in the ranges of 60 to 50 percent.

LANGFITT: Singer's concern about the message the Army might send by reimbursing almost all the disputed money.

Mr. SINGER: What's worrisome here is the signal that this is sending not only to the individual company, in this case, Halliburton, but also to wider market. And one hopes that the lesson isn't if you, you know, over bill us, don't worry about it, you'll get away with it.

LANGFITT: But another expert on procurement, Steve Schooner, praised the Army for making what he said was sure to be an unpopular decision with the public and the news media.

STEVE SCHOONER (Co-director of Government Procurement Law Program, George Washington University): I think that what the Army did is both a responsible and frankly a rather brave thing.

LANGFITT: Schooner is co-director of Government Procurement Law Program at George Washington University. He says people rarely appreciate the difficulty of delivering services in the midst of war.

Mr. SCHOONER: The message that was sent to the contractors time and time again is that speed is tremendously important. Fulfilling our need is tremendously important. And the message that continually came from the government is, don't worry about the marginal dollar, just get the job done first.

LANGFITT: In examining the bills, the Army Corps, which oversaw the contract, said it did find some unreasonable costs. But in a statement, it also said, "The contractor is not required to perform perfectly to be entitled to reimbursement."

Frank Langfitt, NPR News, Washington.

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