Never Saying 'Sorry'

When Halliburton, the vice president's former firm, received a no-bid contract to do billions of dollars worth of work in Iraq, the public was told that Halliburton got that contract, and that much money, in that way, because in a fast response situation like the one in Iraq, Halliburton was simply the best in the business. Now one Halliburton unit stands accused of over-charging the U.S. taxpayer for millions of dollars and its own internal reviewers are acknowledging that the unit took on work for which it was in fact, ill-suited.

Since January, the Pentagon has been engaged in a criminal investigation of Halliburton's unit, Kellogg Brown and Root. The Defense Criminal Investigative Unit, an arm of the Pentagon's Inspector General's office, is examining whether KBR engaged in "substantial overcharging" on millions of troop meals overseas. Pentagon investigators charge that KBR charged for nearly four million meals that were never served. There is also the question of whether KBR paid as much as $61 million too much for fuel last year by buying it from a Kuwaiti source rather than from cheaper sources in Turkey. The billings now under review bring the total cost to the U.S. taxpayer to more than $176 million.

The Wall Street Journal is virtually alone in following this juicy story. For months, staff reporter Christopher Cooper and his colleagues have been digging up revealing documents. In February, the paper reported that two former employees of Halliburton's Kellogg Brown and Root unit were "coached by their superiors to evade competitive bidding rules by breaking up purchases into small pieces." (Pentagon procedures require contractors to seek competitive bids on supplies costing more than $2,500.) The latest revelation is an internal KBR report which calls the company's cost controls "antiquated" and "inadequate."

The memo amounts, said the Feb. 27 Journal, "to a frank admission that Kellogg Brown and Root's critics are voicing valid concerns about the possibility of overcharges under the company's massive contract to supply U.S. troops."

The company's procurement system is "disorganized," and marked by "weak internal controls," declare the company's internal review team. As Cooper and company point out, KBR's reviewers also challenge KBR's President and CEO Randy Harl's claims made in January. The company has "a rigorous system of internal controls for government contracts" Harl said in a conference call on the company's fourth-quarter earnings. In fact, the memo acknowledges that KBR's "paper-based, labor intensive and bureaucratic procurement system isn't suitable for a fast-response situation like Iraq."

It boggles the mind why this isn't a bigger story.

Pressed on the appearance of impropriety last fall, Pentagon spokesperson Victoria Clarke defended the no-bid contract awarded KBR. "If you actually look at the facts, there are actually very few companies around the world that are the size and scope to handle some of these tasks in the rebuilding of Iraq," Clarke told Paula Zahn on CNN last September."

Now the Pentagon itself is weighing criminal charges against KBR, the company has been forced to withhold billing on some $140 million while that investigation proceeds; KBR's own reviewers say the unit wasn't up to the Iraq work, and just one U.S. newspaper appears to be interested.

KBR has its defenders. Critics are just partisan, they allege. Until 2000, Halliburton was headed by Vice President Dick Cheney, and the VP still holds stock and receives monthly deferred payments from the company.

"In spite of the many misleading and inaccurate reports you may hear or read, we are proud of the work we are doing and appreciative of the continuing confidence of our customers," Harl said in the Jan. 29 conference call.

The fact is, he's right. Being Halliburton seems to mean never having to say you're sorry. In the Balkans, Harl recalled, a similar situation arose in 2000. Indeed it did. KBR stands accused of overcharged the U.S. government for millions of dollars. (Among other things, KBR purchased plywood in Texas at inflated prices, instead of buying cheap wood locally.) "Issues like this do occur, and investigations can take a while," said Harl.

Meanwhile, since 2000, the number of U.S. contracts awarded to KBR has mushroomed—from $500 million in 2002 to $3.9 billion last year following the Iraq invasion and occupation. Halliburton is now the government's seventh-largest contractor in terms of work awarded. Allegations notwithstanding, the company recently signed some "impressive" new contracts for work in the Caspian, said Harl. In fact, "KBR is in a good position to expand our business in the rapidly growing Caspian market."

No matter how many strikes, Halliburton never seems to strike out. Can anyone give me three good reasons why this story isn't making headlines?