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Christopher Brauchli

My cup runneth over

23d Psalm

Dame Fortune never quits smiling on Halliburton and its subsidiaries. Just when it looks as though something is about to go awry, she steps in and it all turns out just fine.

One of the nicest things Dame Fortune did for Halliburton, of course, was to make Dick Cheney, with the modest assistance of the United States Supreme Court, the vice-president of the United States. That is a very good position for someone to hold, especially if part of that person’s philosophy includes blowing up countries that one perceives to be potentially inimical to one’s interests as Mr. Cheney does. It means that each time a country is blown up there will be need for the kind of work Mr. Cheney’s former company does. Having made him vice president, Dame Fortune feels free to enlist Mr. Cheney’s aid whenever Halliburton calls on her for help. And given Halliburton’s conduct, she has had to call on him repeatedly for help.

Halliburton’s subsidiary, Kellogg Brown and Root, has demonstrated that what it is doing in Iraq is so enormously complicated that it is impossible to get the billing right the first time. In mid-August a company spokesman said that the government’s shifting needs and the complexity of providing required logistical support made accounting difficult.

Among the company’s past difficulties was over billing the U.S. government by $27.4 million for meals served to American troops. That, the company explained was not directly KBR’s problem. KBR subcontracted the food service to an Iraqi company which billed for roughly three times more meals than it actually served its customers. KBR couldn’t have anticipated the over billing even though the company sent a memorandum to the subcontractor telling it to charge for "the projected number of meals or the actual head count-whichever is greater."

In January it was reported that two KBR employees had taken kickbacks from a Kuwaiti subcontractor providing services to troops in Kuwait. KBR repaid the U.S. $6.3 million when that was discovered. These were only tips of the iceberg.

In early August it was disclosed in a Pentagon internal report that KBR had failed to fully account for a portion of the $4.2 billion it received for work done in Iraq and Kuwait. Under government contracting rules, when an accounting is found wanting, 15% of the amount owed is withheld until accounting issues have been resolved. During 2004 Halliburton received two extensions to give it time to resolve those issues. The last extension expired on August 11 and for a very short time it looked. as though there would not be another extension. Commenting on the Pentagon internal report, a spokesperson for Halliburton said the report was only advisory and the agency making it has "no authority to determine the adequacy of our systems." She went on to say that the Pentagon report is part of a routine process that is "amicably resolved." She got the amicable part right although there were some anxious moments.

Early in the morning of August 17 Dame Fortune was awakened by a desperate call from executives at Halliburton informing her that the government planned to withhold about $60 million a month from KBR until accounting issues were resolved. That call was especially desperate since on August 16 the army and the company had jointly announced that it had been agreed no money would be withheld and KBR would be given additional time to prove its costs. Explaining that decision, Linda Theis, a spokeswoman for the Army Materiel Command, said the army was trying to be "fair and equitable." Shortly after the announcement was made the army changed its mind about what was fair and equitable and announced it would withhold payments after all.

Upset at the Pentagon’s change of heart, Halliburton got on the phone with Dame Fortune and, as usual, she came through. Late in the day on August 17, the army announced it had changed its mind yet again and would give KBR a third extension.

A few days after the extension was granted the army announced that it planned to divide the $12 billion of work previously given to Halliburton among several companies and require Halliburton to bid on the contracts. Although having to bid on contracts it had received without bidding might seem like an unfavorable turn of events, it is not. David Lesar, Halliburton’s chief executive explained: "If we do choose to rebid, we’re going to jack the margins up significantly, " thus suggesting that contracts Halliburton receives with higher profit margins will make up for the money the company lost after it quit overcharging the taxpayer. All in all, August was a good month for Halliburton thanks to Dame Fortune and her vice presidential friend.

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