Pentagon auditors are questioning more than $108 million in costs claimed by Halliburton subsidiary Kellogg Brown Root (KBR) under its $875 million “Task Order 5” contract to provide fuel in Iraq in 2003 and 2004. The Defense Contract Audit Agency (DCAA) also faulted KBR for the quality of the records it delivered to the investigation, citing discrepancies between reported actual costs and accounting records. Halliburton is asserting that no wrongdoing was involved, claiming that the costs stemmed directly from the strictures it was working under and the challenges of getting shipments into a war zone without fail. Company officials also point out the firm’s estimating and purchasing systems have recently received a nod of approval from the Pentagon’s Defense Contract Management Agency (DCMA).
A Pentagon spokeswoman said the audit was conducted to determine whether “fair and reasonable” prices were charged, and that DCAA (Defense Contract Audit Agency) auditors believe that KBR paid an unreasonable price for the fuel in some cases. “The major issues in this audit report have not been resolved,” she said, without providing details. Halliburton spokeswoman Wendy Hall said the company was cooperating fully with auditors, and would work with the Pentagon to resolve the issue. Army Corps spokeswoman Carol Sanders said the Corps was looking at a series of audits before starting final negotiations with KBR over final prices and potential payment adjustments. Meanwhile, Congressional pressure shows no signs of letting up.
“This may be the tip of the iceberg because this is only one of their task orders, and we have nine others that we haven’t had reports on,” says Rep. Henry Waxman (D-CA).
DCAA Audit: Executive Summary (PDF). See also Houston Chronicle article, USA Today article, MSN Money article, Reuters article, MSNBC article. There is no official Halliburton statement about this controversy on its web site.
For a primer on defense procurement issues, contract pricing & adjudication, and the elements of the KBR issue, see Robin Burke’s 3-part series [Part I: Regulations, Players & The Process | Part II: Contract Pricing Options | Part III: How the KBR Investigation/ Compensation Process Will Work]
September 1/15: KBR is taking full advantage of the indemnification clause the U.S. Government signed for much of its work in Iraq, leading to the recent judgement indicating the U.S. is on the hook for about $30 million in legal expenses for various nether dealings in the theater. The Project on Government Oversight points out that there are many more contracts from this period where the U.S. took on general liabilities.