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October 28th, 2006 - Report Says Iraq Contractor Is Hiding Data From U.S.

News article by the New York Times

Profile of Halliburton

Report Says Iraq Contractor Is Hiding Data From U.S.


By James Glanz and Floyd Norris

New York Times

October 28, 2006


A Halliburton subsidiary that has been subjected to numerous investigations for billions of dollars in contracts it received for work in Iraq has systematically misused federal rules to withhold basic information on its practices from American officials, a federal oversight agency said yesterday.


The contracts awarded to the company, KBR, formerly named Kellogg Brown & Root, are for housing, food, fuel and other necessities for American troops and government officials in Iraq, and for restoring that country’s crucial oil infrastructure. The contracts total about $20 billion.


The oversight agency, the Office of the Special Inspector General for Iraq Reconstruction, said KBR had refused to disclose information as basic as how many people are fed each day in its dining facilities and how many gallons of fuel are delivered to foreign embassies in Iraq, claiming that the data was proprietary, meaning it would unfairly help its business competitors.


Although KBR has been subjected to a growing number of specific investigations and paid substantial penalties, this is the first time the federal government has weighed in and accused it of systematically engaging in a practice aimed at veiling its business practices in Iraq.


The allegations come at a critical time for the company, as Halliburton is trying to spin off the subsidiary. And in July, the Army announced that it would terminate KBR’s largest contract with the government, and the company says that it will compete to regain some of that business when the government calls for new bids.


Proprietary information is protected by the so-called federal acquisition regulations, known as FAR. But the agency said KBR routinely stamped nearly all of the data it collects on its work as proprietary, impeding not only the investigations into the company’s activities but also things as simple as managerial oversight of the work.


“The use of proprietary data markings on reports and information submitted by KBR to the government is an abuse of the FAR and the procurement system,” says a memo released yesterday by the special inspector general.


As a result, the memo said, “KBR is not protecting its own data, but is in many instances inappropriately restricting the government’s use of information that KBR is required to gather for the government.”


The specific examples cited by the inspector general are taken from an $18 billion contract called the Logistics Civil Augmentation Program, informally known as Logcap, under which KBR provides food, fuel, housing, recreational facilities and laundry and other services to American troops, government officials and other contractors in Iraq.


A spokeswoman for Halliburton, Cathy Mann, did not dispute the company’s extensive use of the proprietary label but said, “KBR has included proprietary markings on the majority of its data and property in support of its government contracts for the U.S. Army for at least the last decade.”


That assertion could not immediately be confirmed with the Army. But in its memo, the inspector general’s office said that during the course of its investigation, both Pentagon auditors and Army contracting officers had shared serious concerns about the practice.


And a statement released late yesterday by the Army Sustainment Command in Rock Island, Ill., said that it had “implemented corrective actions relative to the concerns raised” in the memo.


Ms. Mann added that KBR believed that the use of proprietary markings in work for the United States government “is not only encouraged, but required” by federal laws restricting the disclosure of American trade secrets abroad.


With the release of the new memo, that argument is unlikely to gain much traction with members of Congress, federal investigators and the numerous critics who have been calling for access to information on KBR’s work in Iraq almost since the invasion ended.


“The arrogance is astounding on the part of KBR,” said William L. Nash, a retired Army major general who is a senior fellow at the Council on Foreign Relations and an expert on postconflict zones. “It’s time for Congress to step in, because this has just gone too far.”


Reaction to the memo on Capitol Hill also revealed that the issue of KBR’s performance and investigations of its work are increasingly causing concern on both sides of the political aisle.


Henry A. Waxman, the California Democrat who is the ranking minority member of the House Committee on Government Reform and was one of the earliest critics of KBR’s use of the proprietary label, said the new memo showed how the company had tried to conceal “corporate profiteering during wartime.”


Senator Susan Collins, the Maine Republican who is chairwoman of the Homeland Security and Governmental Affairs Committee, said, “I am concerned that the special inspector general has not always had full cooperation and access to the corporate documents that his office needs to carry out its critical mission.”


Access to that information, Senator Collins said, “helps to ensure that government contractors fulfill their contractual obligations and that government gets the best value for taxpayer dollars. The improper use of proprietary claims impedes critical transparency and makes it more difficult for the inspector general’s office to complete essential audits.”


The special inspector general for Iraq reconstruction is Stuart W. Bowen Jr., a Republican whose investigative zeal has surprised some political analysts who believed that he would be reluctant to expose flaws in the administration’s reconstruction program and companies like Halliburton. Dick Cheney was Halliburton’s chief executive until he left to run for vice president.


Halliburton has blamed KBR for holding down the company’s stock performance, and is planning to sell a 20 percent stake in KBR to the public by the end of the year, and then spin off the rest of the shares in the company to Halliburton shareholders in early 2007, thus severing the corporate ties.


Halliburton, though, would retain some responsibility for dealing with continuing federal investigations of KBR’s work in Iraq. Documents filed with the Securities and Exchange Commission as part of the public offering have revealed a wide range of investigations into KBR’s work in Iraq, raising the possibilities that investors and the parent company could foot the bill for settlements against KBR.


Those documents, which must reveal potential risks to investors, indicate that continuing Justice Department investigations into KBR’s work in Iraq have produced grand jury subpoenas for current and former employees.


The company could have other liabilities. Outside Iraq, the papers say, there is a Justice Department investigation into possible overcharges in its work in the Balkans from 1996 to 2000. And the securities commission and the Justice Department are investigating payments in Nigeria that may have violated the Foreign Corrupt Practices Act, which bars the bribing of foreign officials.


There is also an antitrust investigation, and the company says investigations into the Nigerian project found information that “former employees may have engaged in coordinated bidding with one or more competitors on certain foreign construction projects and that such coordination possibly began as early as the mid-1980s.”


The memo by the inspector general said that KBR would sometimes provide data to one part of the United States government, like Pentagon auditors, but with the proprietary label that would prevent its release to the public or even to other parts of the government.


In other cases that clearly irritated the inspector general’s auditors, KBR would hobble their work by releasing data in the form of gigantic but indigestible tables rather than within the kind of software - like Excel spreadsheets - that would let the auditors do their calculations.


Those findings have raised suspicions that if KBR was going to such lengths to keep the data out of the hands of auditors, then the company must have something to hide, said Frederick D. Barton, a director of the Postconflict Reconstruction Project at the Center for Strategic and International Studies.


“There’s been smoke for some time,” Mr. Barton said. “This seems to indicate that there was fire as well.”


Halliburton stock was weak early in the Bush administration, in part because oil prices fell as the world economy weakened in 2001. The stock bottomed out at $4.30 in early 2002 and rose sharply thereafter, eventually peaking at $41.98 this April as the oil services industry benefited from increased oil exploration and as the Iraq war continued.


It dropped as low as $26.33 earlier this month, as oil prices fell. It closed yesterday at $32.15.


Copyright 2006 The New York Times Company


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