Halliburton subsidiary cheating the Pentagon?

WASHINGTON — A Pentagon investigation has found evidence that a subsidiary of the politically connected Halliburton Co. overcharged the government by as much as $61 million for gasoline delivered to Iraq under huge no-bid reconstruction contracts, senior defense officials said on Thursday.

The subsidiary, Kellogg, Brown & Root, also submitted a proposal for cafeteria services that inflated the cost by $67 million, the officials said. The Pentagon rejected that proposal, they said.

The problems involving Halliburton, Vice President Dick Cheney's former company, were described in a preliminary report by auditors, the officials said. They said the issues were a source of deep concern within the Pentagon, whose contracts with KBR were awarded without competitive bidding and have a potential value of $15.6 billion.

The company denied overcharging and called the inquiry a "routine audit." Dave Lesar, the company's chairman, president and chief executive, said, "We welcome a thorough review of any and all of our government contracts."

Dov Zakheim, the Pentagon's budget chief, told reporters at the Pentagon that "contractor improprieties and/or contract mischarging on department contracts will neither be condoned nor allowed to continue."

Halliburton, a enormous corporation that had more than $12.5 billion in revenues in 2002, has emerged as a symbol for many people who opposed the war in Iraq and who claimed the interests of such companies with close political ties were given too much consideration by the administration. Criticism of the company intensified when it received the no-bid contract worth billions of dollars to provide a variety of services in Iraq. Administration officials counter that few companies have the resources and expertise to carry out the work that is needed there.

Defense officials said the Pentagon was negotiating with KBR over how to resolve the issue over the fuel charges. But Michael Thibault, deputy director of the Defense Contract Audit Agency, said in a telephone interview that a draft report by the agency has recommended that the Army Corps of Engineers seek reimbursement from the company.

The defense officials said that Halliburton did not appear to have profited from the overcharging for fuel, but had instead paid a subcontractor too much for the gasoline in the first place.

Halliburton also has said that one reason it needs to charge a high price for fuel is that it must be delivered in a combat zone. Several KBR workers have been killed or wounded in attacks by Iraqi insurgents.