Congressman says Pentagon auditors found Halliburton paid $130 million for 'unsupported' charges

(Gold9472: I can't wait until Dick Cheney hangs.)


Congressman Henry Waxman (D-CA), the ranking Democrat on the House Government Reform Committee has disclosed that Halliburton received $130 million for charges that the Pentagon's own auditors had found to be "unsupported," RAW STORY has learned.

Waxman disclosed the information in a letter to Rep. Tom Davis (R-VA), the Republican chairman of the Government Reform Committee, in which he called on Rep. Davis to convene hearings.

Waxman's letter follows, slightly abbreviated.

The Honorable Tom Davis
Committee on Government Reform
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

I am writing to request a hearing on the decision by the Army Corps of Engineers to pay Halliburton $130 million in cost reimbursements, profits, and bonuses for billings that Defense Department auditors determined to be unreasonable and unsupported. The Committee should also insist that the Corps of Engineers provide the award fee documentation for Halliburton's contract that we requested in April.

The payments in question were made under the no-bid Restore Iraqi Oil (RIO) contract, which Halliburton was awarded in March 2003. Under the contract, the Defense Department issued ten task orders to Halliburton for oil-related work in Iraq, including the importation of fuel and the repair of oil facilities. Halliburton charged over $2.5 billion for this work, which is now complete. Because RIO is a cost-plus contract, Halliburton is reimbursed for its costs and then receives additional profits and bonuses. The profits are based on a negotiated estimate of the contract costs, known as a "definitization." Under the RIO contract, Halliburton receives 2% of the definitized costs as an automatic base fee and up to 5% of the definitized costs as an additional award fee bonus. Based on considerations such as cost control and performance, a government award fee board or official determines what percentage bonus, if any, Halliburton should receive under each task order.

Recently, without any announcement, the Corps of Engineers posted on its website the definitized value of six RIO task orders and the amount of Halliburton's fees and bonuses under each of these task orders. The posted information reveals that the Corps of Engineers appears to have ignored auditor findings in three ways: by reimbursing Halliburton for costs determined to be unreasonable or unsupported, by permitting Halliburton to collect profits on these challenged costs, and by giving Halliburton unwarranted bonuses.

Pentagon auditors identified $169 million in excessive and unsubstantiated costs under the six task orders. The auditors found Halliburton's fuel importation and other costs to be unreasonably high and determined that Halliburton's cost proposals were "not acceptable for negotiation of a fair and reasonable price." As a result, the auditors recommended that Halliburton not be reimbursed for these costs and not receive profits on them.

It now appears, however, that the Corps rejected the auditor findings and paid Halliburton for $124 million of the challenged costs. Although between 60% and 70% of costs challenged by Pentagon auditors are typically sustained, the Corps sustained only 27% of the challenged costs in this case. The Administration has offered no explanation for this decision to pay three-quarters of Halliburton's challenged costs.

Moreover, because RIO is a cost-plus contract, the decision to pay Halliburton for these challenged costs increased the company's profits by millions of dollars. Under the RIO contract, Halliburton received a larger base fee because the pool of definitized costs is larger. In this case, Halliburton was paid $2.5 million in base fee profits for billings that Pentagon auditors challenged.

Compounding these egregious payments, it appears that the Corps also gave Halliburton million-dollar bonuses for overbilling the taxpayers. Two factors determine the size of Halliburton's award-fee bonus: the percentage of the award fee provided to Halliburton and the value of the definitized task orders. In this case, both appear to be inflated, with Halliburton receiving bonus awards of up to 3.4% on the challenged costs being reimbursed. In fact, given Halliburton's track record of overcharging the government, the entire $38 million in bonuses awarded to Halliburton under the six task orders is questionable.

The decisions by the Corps of Engineers seem inexplicable. For many months, Pentagon auditors have criticized Halliburton's cost estimation systems as "inadequate" and its fuel charges as "unreasonable." Our Committee should require the Corps to explain why it decided to reimburse Halliburton for challenged costs, to permit Halliburton to collect profits on challenged costs, and to give Halliburton large bonuses as a reward. With reimbursement and fee decisions still pending on four other RIO task orders, it is important that we receive prompt answers.

On March 8, 2003, the U.S. Army Corps of Engineers awarded Halliburton subsidiary KBR a no-bid monopoly contract to restore and operate Iraq's oil infrastructure. The contract was awarded in secret, and other qualified companies, like Bechtel, which did most of the oilfield work after the first Gulf War, were precluded from bidding.[1] Halliburton received the contract because it had previously been awarded a task order to prepare a contingency plan for Iraq's oil sector. The Government Accountability Office later investigated the award of the contingency contract and concluded that it was not "in accordance with legal requirements" because "preparation of the contingency support plan for this mission was beyond the scope of the contract."[2] GAO added that the work "should have been awarded using competitive procedures."[3]

Halliburton charged approximately $2.5 billion under the RIO contract, which had a potential value of $7 billion.[4] The Corps of Engineers issued ten different task orders under the RIO contract. Work has now concluded on all ten task orders.

Halliburton's work was split generally between oil infrastructure projects and fuel importation tasks: Task Orders 1, 2, 3, 4, and 6 related to various oil infrastructure projects, while Task Orders 5, 7, 8, 9, and 10 involved the importation of fuel from Kuwait, Turkey, and Jordan. The majority of Halliburton's charges under this contract were for fuel importation and distribution. Halliburton charged approximately $1.5 billion for fuel work and $1 billion for infrastructure work.[5] There were two sources of funding for this work: approximately $875 million came from U.S. taxpayer funds and $1.64 billion came from Iraqi oil proceeds and other funds in the U.S.-controlled Development Fund for Iraq.[6]

RIO is a "cost-plus" contract, meaning that Halliburton is reimbursed for its costs and then receives additional profits and bonuses. The profits are based on a negotiated estimate of the contract costs. The process by which the government and Halliburton agree on a cost estimate for each task order is called "definitization." Under the RIO contract, Halliburton receives 2% of the definitized costs as an automatic base fee and up to an additional 5% of the definitized costs as an optional award fee bonus. A government award fee board or award fee determination official considers factors such as cost control and performance to determine what bonus percentage between 0% and 5% Halliburton should receive under each task order.[7]

End Part I