Auditor says Halliburton payments must be withheld <BR>

WASHINGTON - The US Army should withhold some future payments to Halliburton for work in Iraq due to billing disputes, a government auditor said on Wednesday, a move that could cost the contractor tens of millions of dollars.

Stuart Bowen, special inspector general for Iraq reconstruction, said in a memorandum to Army auditors and commanders he believed US contract laws requiring a 15 per cent withholding if certain conditions were not met should be imposed on Halliburton unit Kellogg Brown and Root.

Run by Vice President Dick Cheney from 1995-2000, Halliburton has been bogged down in a long-running billing dispute with the US military, and government investigators are looking into whether the company overcharged for work.

The Houston-based company is the US military's biggest contractor in Iraq with the potential to earn up to US$18 billion ($25 billion) for multiple contracts there, with tasks ranging from cooking meals for troops to rebuilding Iraq's oil industry.

Bowen said based on their "limited audit work," he supported military auditors' proposals last August for the Army to implement the withholding. Documents then indicated the company had not provided enough details to support at least US$1.82 billion out of US$4.3 billion of logistical work.

"We agree with US Army Materiel Command and DCAA (Defence Contract Audit Agency) positions (on the withholding issue)," said Bowen in the memorandum.

Halliburton spokeswoman Cathy Gist said the company was working with its client to resolve the billing dispute and it had not received any new information about a withholding.

"Currently, the possible 15 per cent withholding of any funds has not been implemented across any task order under the Logistics Civil Augmentation (LOGCAP) contract and we will continue to work directly with our client regarding resolution for this issue," said Gist.

Linda Theis, a spokeswoman for Army Field Support Command in Rock Island, Illinois, said late Tuesday a decision had not been taken yet on whether to withhold 15 per cent.

In August, the US Army backed down from a recommendation to dock some payments for KBR's massive logistics contract serving US troops in Iraq and Kuwait and said it was trying to resolve billing problems with the company. The Army wanted more time to resolve the issue and feared docking payments would disrupt supplies and support to troops.

The withholding can be implemented under Federal Acquisition Regulations and the Army estimated in August this could amount to about US$60 million a month based on KBR billing schedules at that time.

Democrats have seized on Halliburton's work in Iraq and New Jersey Sen. Frank Lautenberg said Bowen's concerns showed the need to investigate Cheney's old company.

"When will the Republican Congress stop covering up Halliburton's wrongdoing and end this abuse of taxpayer dollars?," said Lautenberg in a statement.

Previous audits by Bowen and others have been critical of KBR's cost and billing estimates. A draft Pentagon audit last December said the company might have overcharged the US military by up to US$61 million for fuel delivered to Iraq.

Halliburton's problems have been compounded in recent weeks by claims from the US Army Corps of Engineers' top contracting official that the award of multibillion deals to KBR was the worst case of contracting abuse she had seen. The FBI is investigating her claims.

Halliburton stock was down 1.2 per cent, or 48 cents, at US$39.99 on the New York Stock Exchange in late morning trade.

- REUTERS