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Reprinted with permission as published in Bloomberg News on December 17, 2003.
Halliburton Overcharge Not Deliberate, Zakheim Says
By: Tony Capaccio – Halliburton Co., the largest U.S.
oilfield-services company, may have overcharged the government
for fuel deliveries in Iraq because of an “antiquated”
accounting system, and no evidence suggests the costs were
deliberately inflated, Pentagon Comptroller Dov Zakheim said.
The Defense Contract Audit Agency 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.
“I have no basis whatsoever to see anything nefarious,”
Zakheim told reporters at a breakfast meeting in Washington.
Halliburton's KBR unit didn't profit from any overcharges, and
the government and the company hope the question can be resolved
by early February, he said.
Zakheim said the problem appears to stem from an antiquated
accounting and cost-estimating system at the company that Vice
President Dick Cheney headed from 1995 to 2000. Halliburton has
assigned a 25-person team to correct that within “the next
couple of months,” he said.
Halliburton plans to respond today to the DCAA questions,
Wendy Hall, a company spokeswoman said.
Shares of Halliburton, the world's second-largest provider
of oilfield services, rose 48 cents to $25.62 at 2:13 p.m. in New
York Stock Exchange composite trading. The stock has risen 24
percent this year, outpacing Schlumberger Ltd., the world's
largest oilfield-services company. Halliburton has a market value
of about $11 billion.
Profit at Risk
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,” 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,” Zakheim said.
Engineers directed the company to buy and deliver fuel from
Kuwait. The company sought and received bids from four suppliers.
Only one met the Corps' specifications, and that is the one the
Corps and the company chose, the statement said.
“Halliburton has tried repeatedly tried to transfer the
fuel delivery mission to a local supplier because it is dangerous
for our people,” the statement said. “So far, no one, including
the Corps or the CPA, has been able to find a replacement for
Halliburton. Halliburton only makes a few cents on the dollar
when fuel is delivered from Kuwait to Iraq.”
The company's KBR unit, formerly known as Kellogg, Brown &
Root, failed to fully analyze the price it was charged by a
Kuwaiti supplier.
“The issue isn't just the $61 million,” Zakheim said. “The
issue is that they've got a rather antiquated accounting
system,” Zakheim said. ”From the Department of Defense, they
have my sympathies because I've got a rather antiquated
accounting system and they are moving very expeditiously to
rectify this.”
2002 Audit
The DCAA did an audit of Halliburton in 2002 that resulted
in a series of recommendations for internal business practice
improvement. “There's basically just one left -- this one,”
Zakheim said of recommendations to update it cost estimating and
accounting system.
Democratic lawmakers, including presidential candidates
Richard Gephardt and Joseph Lieberman, have questioned
Halliburton's Iraq work and its link to the Bush administration
through Cheney.
Congressional critics have accused Halliburton of
“gouging” the taxpayer -- a term Zakheim said is “is really
beside the point.”
“This oil issue has to do with a subcontractor,” he said.
“It doesn't look like KBR made any money, particularly out of
it.”
“The ‘systemic’ issue is not ‘overcharging,’” Zakheim
said. “The systemic issue seems to be a rather antiquated
billing system, which seems to me that in the aggregate, the
numbers are right,” Zakheim said of the overall $866 million
paid.
© 2003 Bloomberg L.P. All rights reserved. Reprinted with
permission. Visit www.Bloomberg.com.
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