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Halliburton loses Iraqi oil deal
Department of Defense replaces Army Corps of Engineers and will open Iraq contract to new bids.
December 31, 2003: 12:57 PM EST

WASHINGTON (CNN) - Just weeks after a Pentagon audit questioned whether Halliburton overcharged the U.S. government in a contract to bring fuel into Iraq, the Department of Defense has replaced the Army Corps of Engineers in overseeing that mission, officials said Tuesday.

The Corps will be replaced by the Defense Energy Support Center, the energy procurement agent for the Defense Department. That group will take over the mission and open the contract for new bids.

The Army Corps of Engineers had subcontracted a division of Halliburton -- the oil services company once run by Vice President Dick Cheney -- to fill that contract, which involved bringing fuel into war-torn Iraq from Kuwait.

A Pentagon audit in early December questioned whether the company had overcharged the government as much as $61 million for its services.

Lynette Ebberts, a spokeswoman for the DESC, told CNN in a phone interview that her department received a letter Dec. 23 from Michael Wynne, an undersecretary of defense, directing it to take over the mission of bringing in fuel for the Iraqi civilian population.

The DESC currently buys fuel for military services, Ebberts said, but the Defense Department order charges it to buy and prepare LPG -- a type of fuel used mainly for cooking -- for the Iraqi people.

"DESC will work with the Iraqi Ministry of Oil and its marketing arm, the State Owned Marketing Organization, to assist them in meeting the country's imported petroleum product requirements, such as diesel, gasoline, kerosene and liquefied petroleum gas," said a statement from the DESC.

Halliburton Company

A spokeswoman for Halliburton said in a statement that Kellogg, Brown and Root (KBR) had always understood that the task of transporting fuel into Iraq was temporary.

"We have worked and will continue to work with the [Army] Corps of Engineers to provide a permanent solution to the fuel needs of the Iraqi people. Should the Corps elect to utilize DESC to perform the transportation mission, we will coordinate a transition schedule with them. No such schedule has been established," said the statement from spokeswoman Beverly Scippa.

A DESC team will go to Iraq in January, Ebberts said, to assess the needs for the fuel and open the contract for bidding.

"We'll get contracts out there and have open and fair competition," she said.

"The Center will strive to put competitively awarded contracts in place as quickly as possible for this mission," said Richard Connelly, DESC director, in a statement.

A spokesman for the Army Corps of Engineers did not immediately return CNN calls for comment.

The Pentagon said Dec. 11 a routine review of a contract to bring gas from Kuwait to Iraq turned up the potential overcharge by Halliburton subsidiary KBR, which was awarded a no-bid contract in March to rebuild Iraq's oil industry.

However, there is no allegation that Halliburton unduly profited from the overpriced gas. Rather, the audit questions whether Halliburton paid above-market rates to a Kuwaiti subcontractor when it paid $2.27 per gallon for the gas, compared to another supplier who got gas at $1.18 per gallon from Turkey.

Halliburton said in a Dec. 11 statement "it only makes a few cents on the dollar" on the fuel deliveries.

"It is not fact that KBR has overcharged. KBR has acted in full accordance with its fiduciary and contractual responsibilities under the contract," the statement from the Houston-based company said.

Halliburton said the Army Corps of Engineers directed the company to buy and deliver fuel from Kuwait. Halliburton got bids from four suppliers, the company statement said, and one was chosen that met the Corps' specifications.

"Halliburton has repeatedly tried to transfer the fuel delivery mission to a local supplier because it is dangerous for our people. So far, no one, including the Corps or the CPA (Coalition Provisional Authority), has been able to find a replacement for Halliburton," the statement said.

The contract between the Corps and Halliburton, which the company won without competitive bidding, has been controversial from the beginning, particularly because of the company's connection to Cheney, who headed Halliburton prior to becoming vice president.

Cheney has said he had nothing to do with the decision to give the contract to his former firm.

President Bush said shortly after the controversy erupted that if any company had overcharged the government, it would have to repay the money.  Top of page

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