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Pentagon denounces Halliburton's 'overwhelmingly negative' performance in Iraq
28 March 2006

WASHINGTON, March 28 (HalliburtonWatch.org) -- A new report released today reveals that Pentagon officials and investigators have harshly criticized Halliburton�s oil reconstruction work in Iraq, citing �profound systemic problems,� �exorbitant indirect costs,� �misleading� and �distorted� cost reports, a �lack of cost control,� an �overwhelmingly negative� evaluation, and an �obstructive� corporate attitude toward oversight.

The findings were released by Rep. Henry Waxman (D-CA) and pertain to Halliburton's Restore Iraqi Oil 2 (or, RIO 2) contract, awarded to the company in 2003.

To evaluate Halliburton�s performance under RIO 2, Waxman's report analyzed hundreds of pages of previously undisclosed correspondence, evaluations, and audits. The documents reviewed in preparation of the report include correspondence from the Project and Contracting Office (PCO), the Defense Department agency charged with overseeing RIO 2; evaluations by a private contractor, Foster-Wheeler, hired to help the PCO oversee the contract; documentation related to award-fee determinations; and audits by the Defense Contract Audit Agency (DCAA).

Pentagon investigators made the following conclusions:

� Intentional Overcharging: The PCO board evaluating Halliburton�s request for award fees found that Halliburton repeatedly overcharged the taxpayer, apparently intentionally. In one case, �[c]ost estimates had hidden rate factors to increase cost of project without informing the Government.� In another instance, Halliburton �tried to inflate cost estimate by $26M.� In yet a third example, Halliburton claimed costs for laying concrete pads and footings that the Iraqi Oil Ministry had �already put in place.�

� Exorbitant Costs: The PCO reported that Halliburton was �accruing exorbitant indirect costs at a rapid rate� and that Halliburton�s �lack of cost containment and funds management is the single biggest detriment to this program.� The oversight contractor found a �lack of cost control � in Houston, Kuwait, and Iraq.� In a partial review of the RIO 2 contract, DCAA auditors challenged $45 million in costs as unreasonable or unsupported.

� Inadequate Cost Reporting: The PCO found that Halliburton �universally failed to provide adequate cost information,� had �profound systemic problems,� provided �substandard� cost reports that did �not meet minimum standards,� and submitted reports that had been �vetted of any information that would allow tracking of details.� The oversight contractor complained about �unacceptable unchecked cost reports.�

� Schedule Delays: Halliburton�s work under RIO 2 was continually plagued by delays. According to the PCO, Halliburton had a �50% late completion� rate for RIO 2 projects. Evaluations by the award fee board noted �untimely work� and �schedule slippage.�

� Refusal to Cooperate: PCO evaluations described Halliburton as �obstructive� with oversight officials. Despite the billions in taxpayer funds Halliburton has been paid, the company�s �leadership demonstrated minimal cooperative attitude resolving problems.�

The decision to award Halliburton the RIO 2 contract was controversial. Before the award of the contract, DCAA auditors warned the Defense Department not to enter into additional contracts with Halliburton because of �significant deficiencies� in the company�s cost estimating system, but the Department ignored this advice. It now appears that problems that led to the unusual DCAA warning have been realized in RIO 2, with serious implications for the reconstruction effort in Iraq and federal taxpayers.

Halliburton is the largest private contractor in Iraq. The company has operated there under three mega-contracts: the �LOGCAP� contract to provide support to U.S. troops; the original �Restore Iraqi Oil� (RIO) contract, which Halliburton received in secret without competitive bidding in March 2003; and the RIO 2 contract, which was awarded to Halliburton in January 2004.

Previous reports by government auditors and congressional investigators have evaluated the LOGCAP and RIO contracts. The report released today, however, is the first to examine the RIO 2 contract.

According to the report, "The RIO 2 contract is critically important to the successful reconstruction of Iraq. The mammoth $1.2 billion contract gave Halliburton the responsibility for restoring the oil fields in southern Iraq, which historically have been Iraq�s largest and most productive. Three years ago, Bush Administration officials promised that Iraq would be able to fund its own reconstruction out of its oil revenues. The successful restoration of the southern oil fields, which the Administration entrusted to Halliburton under RIO 2, was supposed to pay for the rebuilding of much of the rest of Iraq�s infrastructure. But these promises have not been fulfilled."

Read Waxman's full report by clicking this link.