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Contract Flaws in Iraq Cited

Rebuilding tasks suffer from poor oversight and questionable spending, agencies find. A delay in equipping the security forces draws criticism.

March 11, 2004|T. Christian Miller | Times Staff Writer

WASHINGTON — The Pentagon's effort to rebuild Iraq came under the sharpest fire yet Wednesday from critics who described a process rife with poor oversight, questionable spending and long delays that endanger the country's security.

A government audit memo and a briefing given to congressional Democrats indicated systematic problems in the contracts awarded to Halliburton Inc., the largest contractor in Iraq. And a senior U.S. military officer criticized delays resulting from the recent collapse of a crucial contract to equip Iraqi security forces.

The revelations cast new doubts on the rebuilding effort on the eve of what could be a combative congressional review of one of the largest such U.S. initiatives undertaken in any country.

Pentagon officials fought back by insisting that their effort was on track. They pointed to the award late Wednesday of the first of an expected wave of new reconstruction contracts totaling $5 billion.

The latest contracts, worth $129 million and awarded to five companies, including three from California, were handed out a month behind schedule.

"Work is moving along very nicely," retired Adm. David Nash, the Iraq reconstruction czar, said in a Pentagon news briefing Wednesday. "We do have construction underway in this country, and there's more to follow."

But the contract award announcement was swamped by criticism from several fronts.

The Pentagon's dealings with Halliburton, an oil company run by Vice President Dick Cheney between 1995 and 2000, came under fresh questioning in a memo circulated among Democratic members of the House Government Reform Committee, which was to hold a hearing today on the rebuilding effort.

Halliburton is facing several investigations, including charges that it overbilled the government $61 million in fuel costs and that it charged up to $177 million for meals never served to U.S. troops. A criminal investigation in the U.S. and Kuwait also has been launched into an incident in which one or two Halliburton employees allegedly took kickbacks for helping a contractor overcharge by $6 million. Halliburton has returned that money.

The memo, from Rep. Henry A. Waxman (D-Los Angeles), described a briefing given by the General Accounting Office to investigators from the Government Reform Committee on Feb. 13. The GAO, the investigative arm of Congress, is independently examining Iraq reconstruction contracts.

In the briefing, GAO officials described a lack of sufficient government oversight of the Halliburton contract, the memo said. They told committee staffers that some of the contract monitoring was being done by military reservists with only two weeks' training. In another case, the memo said, the GAO found that a $587-million contract had been approved in 10 minutes based on six pages of documentation.

They also described a single, $700-million "discrepancy" in which Halliburton told the government that it would cost $2.7 billion to provide food and other logistics services, the memo said. After questioning by the Defense Department, the company slashed its estimate for the work to $2 billion -- though it never fully explained how it had reached the new figure, the memo said.

A GAO spokesman confirmed that a briefing had taken place, but declined to comment on its contents.

The Waxman memo also excerpted material from a December preliminary audit of Halliburton's activities that was conducted by the Defense Contract Audit Agency.

The audit found "significant deficiencies" in Halliburton's system for billing estimates submitted under a multibillion-dollar contract with the Army to provide meals, housing and other logistics support, the memo said. Pentagon officials confirmed that an audit had been issued, but declined to release it.

Specifically, the memo said the audit found that Halliburton inflated the billing estimates given to the Army by failing to update information on its subcontractors. The estimates eventually became the basis of billing agreements with the government.

The memo said the audit found that Halliburton had violated federal government regulations on contracting, and that the company's problems in estimating its costs was "systemic."

The Waxman memo also mentions an audit agency letter sent to the Army Corps of Engineers on Jan. 13, which Pentagon officials released to The Times.

The letter, coming on the heels of the audit, warned that Halliburton's internal systems for estimating costs to be submitted to the Army were "inadequate." The letter advised the Army to contact the auditing agency before entering into any future negotiations.

"Collectively, the deficiencies described above bring into question [Halliburton's] ability to consistently produce well-supported proposals that are acceptable as a basis for negotiation of fair and reasonable prices," the letter said.

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