Halliburton says employees got kickbacks on Iraq work

WASHINGTON -- Halliburton Co., hired to redevelop much of Iraq's oil sector, said yesterday it would compensate the federal government for $6.3 million in "improper payments" its former employees allegedly received in exchange for a subcontract awarded to a Kuwaiti firm.

"We are cutting a check to the government just in case the overbilling charge bears out," said Randy Harl, president and chief executive of Kellogg, Brown and Root Services, the Halliburton subsidiary implicated in the alleged kickbacks. "We will bear the cost of the potential overcharge, not the government."

Harl made his statement as Democratic lawmakers responded angrily to a Wall Street Journal report that Halliburton employees allegedly received kickbacks in return for the subcontract. The report coincides with an unrelated investigation of Halliburton by the Pentagon involving alleged overcharging for fuel deliveries from Kuwait to Iraq. "This is the tip of the iceberg," said Representative James P. McGovern, a Worcester Democrat. "It's a real example of corruption involving companies that have received billions of dollars in contracts financed by US taxpayers."

In a letter to the White House, McGovern urged the US government to cancel Iraq-related contracts to Halliburton and KBR and to remove them from the list of companies eligible to bid on Iraq-related work.

Democrat Henry Waxman, a representative from California who has followed the growing controversy related to Halliburton's Iraq operation, demanded immediate hearings into what he called "waste, fraud, and abuse in Iraq reconstruction contracts."

"The administration cannot be relied upon to investigate these issues," Waxman wrote. Halliburton said it discovered through an internal audit that "one, perhaps two former KBR employees may have accepted improper payments from a Kuwaiti subcontractor" that Halliburton hired to supply materials to US forces in Iraq. The employees were fired and the matter promptly referred to Pentagon investigators. "We found it quickly, and we immediately reported it," said spokeswoman Wendy Hall in a statement.

Such voluntary disclosure is unlikely to appease Halliburton's critics. It has been one of the targets of lawmakers and watchdog groups who say the often secretive way in which Iraq-related contracts have been awarded provides fertile ground for corruption.

And as the presidential campaign heats up, reports of irregularities surrounding the Houston-based oil giant are emerging as a potent issue for Democrats, with Cheney at the center. Though he has repeatedly said he severed his Halliburton ties to become vice president, Cheney maintains a financial interest in the company in the form of $20 million worth of deferred compensation.

Democratic leaders have criticized the White House over alleged favoritism ever since it handed out Iraq reconstruction contracts to companies like Halliburton with close Republican ties. The first round was awarded secretly and, in Halliburton's case, without competitive bidding. Procurement officials who awarded the contracts said the companies selected were the only ones capable of meeting postwar Iraq's enormous rebuilding needs. Halliburton and KBR are the biggest winners, with new and existing contracts estimated at more than $6 billion. In Iraq, KBR provides food, laundry, housing, and other services for US troops under an existing Pentagon contract worth $3.6 billion. Last March Halliburton was awarded a contract by the Army Corps of Engineers to redevelop Iraq's battered oil sector; the pact has since earned the company about $2 billion in new business.

Army Corps officials this month awarded KBR two contracts worth up to $1.7 billion to rebuild the oil industry in southern Iraq, despite the fact that Halliburton was under investigation by a Pentagon auditor for allegedly overcharging the government by as much as $61 million for fuel shipments into Iraq. Findings from the audit are under review by the Pentagon's inspector general.

A spokesman at the inspector general's office said it had no comment on the separate allegations regarding kickbacks at KBR.

Stephen J. Glain can be reached at glain@globe.com.