WASHINGTON - Halliburton Co., the biggest contractor for rebuilding Iraq, faced escalating scrutiny yesterday over allegations that it had systematically overbilled the U.S. government. The company absorbed sharp questions on Capitol Hill, and the Justice Department launched an inquiry that could bring civil or criminal charges.
At issue is whether Halliburton, formerly led by Vice President Dick Cheney, overcharged $61 million for gasoline and routinely provided incomplete or inaccurate information on costs of gasoline and other services.
Halliburton has "been gouging the taxpayer," Rep. Henry A. Waxman, the senior Democrat on the House Government Reform Committee, said at a hearing yesterday. "The end result is that it costs the taxpayer twice as much when Halliburton imports fuel as it costs when the government does."
The Justice Department's is the third inquiry into the Pentagon's contracts with Halliburton, worth up to $18 billion. The Pentagon began two audits last fall that found "significant" flaws in Halliburton's billing practices.
The Defense Department inspector general's office later launched its own inquiry.
Last month, sources say, the Pentagon sent the matter to the Justice Department for review. The Justice investigation could have the most far-reaching effects on Halliburton, which could be subjected to subpoenas, fines or charges.
The investigation might also complicate President Bush's re-election campaign if it creates the perception that well-connected U.S. businesses, especially one with close links to the administration, are profiting improperly in postwar Iraq.
Halliburton has warned its shareholders that it could face a cash crunch because of contract money that has been withheld or returned to the government.
`Best value, best price'
Wendy Hall, a Halliburton spokeswoman, played down the significance of the Justice Department's role yesterday.
She predicted that Halliburton and its subsidiary KBR, which is handling the gasoline contract, would be cleared by any inquiry.
"There have been no conclusions reached, and the facts show that KBR delivered fuel to Iraq at the best value, the best price, and the best terms and in ways completely consistent with government procurement policies," Hall said yesterday.
The company has said that it aggressively pursued any problems it found, pointing out that it fired two employees involved in an alleged kickback scheme and reimbursed the government $6.3 million.
At yesterday's hearing of the House Committee on Government Reform, Pentagon officials defended their contracting practices and Halliburton's explanations for its problems.
They said a lack of time and an unstable environment had forced the Pentagon to use contracts without fixed prices and without normal competitive bidding.
Question of favoritism
In questioning that broke down largely along party lines, Democrats questioned whether Halliburton was shown favoritism and rewarded for its political connections.
Republicans suggested there was nothing improper about the Pentagon's awarding Halliburton highly lucrative contracts in Iraq.
The committee chairman, Rep. Thomas M. Davis III, a Virginia Republican, asked all seven officials from the Pentagon and one member of the Coalition Provisional Authority in Iraq to state for the record that they had not been influenced in their decision-making by Cheney or by any other politician. All of them did so.
Waxman insisted, though, that only Halliburton's high-level political ties could explain such substantial overcharging and no-bid contracts.
"All I've been hearing," the California Democrat said, "is a string of denials and platitudes."
"The policy-makers in this administration don't seem to care about the pattern or waste, fraud and abuse that is coming to light," he said.
Maj. Gen. Carl A. Strock, director of the Civil Works Program of the Army Corp of Engineers, which awarded the fuel contract, said few companies besides Halliburton could have managed the contract in such little time.
"We were told to get fuel moving now," Strock told the committee. Halliburton's subsidiary "said, `Give me time, and we can negotiate a better price.' We said, `No, there is no time.'"
But the two Pentagon audits, released in full yesterday, found "significant deficiencies" in the company's processes.
They questioned why the company had overbilled the government on several occasions. Pentagon officials discovered the discrepancies during routine audits.
The audits questioned why, among other things, the company charged the government $208.8 million to make food for personnel at seven makeshift cafeterias, though Halliburton had sub-contracted the work out to another company for only $141.5 million.
"Based on our computation," one audit found, "subcontract costs for the seven sites alone were overstated by $67.3 million."
Halliburton said it has credited the Defense Department with $36 million.
It also said it has delayed billing the government for $141 million until the investigations are complete.