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PENTAGON PLAN

Halliburton funds may be held in billing probe

WASHINGTON -- The Pentagon plans to withhold up to $300 million in payments to Halliburton Co. because of possible overcharging for meals served to troops in Iraq and Kuwait, defense officials said yesterday.

Starting next month, the Defense Department will begin withholding 15 percent of the money paid to the company, formerly led by Vice President Dick Cheney, on a multibillion-dollar contract to provide such services as food, housing, laundry, and mail to American forces in Iraq.

Halliburton spokeswoman Wendy Hall said the company disagreed with the decision and hoped to persuade the Pentagon not to withhold the funds. If the Defense Department does withhold the money, Halliburton will in turn withhold 15 percent of its payments to its subcontractors, Hall said.

The withholding won't affect Halliburton's bottom line, Hall said. Company executives told Wall Street analysts last week the company was taking in about $1 billion a month from its operations in Iraq. The company has set aside $141 million to settle the overcharging allegations and has repaid about $36 million.

Halliburton and its military services subsidiary, KBR, face a criminal investigation into alleged misdeeds in government work in Iraq and Kuwait. In this case, Pentagon auditors accuse KBR of overestimating the number of troops to be served meals, thus reaping millions in overcharges.

Halliburton has said any mistakes in estimating the number of troops came from having to operate in a war zone where the numbers changed unpredictably.

A letter from Pentagon comptroller Dov Zakheim to Army contracting officials, dated last month and released yesterday, cited the "possibility of substantial overcharges" on KBR's meal contract.

The possible overcharging for meals is one issue the government has with Halliburton's work in Iraq and Kuwait. The work includes a contract to rebuild the oil industry in southern Iraq.

Halliburton's other problems include:

* Allegations of a kickback scheme by two former workers in Kuwait that prompted Halliburton to reimburse the Pentagon $6.3 million.

* Faulty cost estimates on the $2.7 billion contract to serve troops in Iraq, including failing to tell the Pentagon that KBR fired two subcontractors. KBR admitted those mistakes in a letter to a military auditor.

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