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Halliburton unit gets $7b contract in Iraq

WASHINGTON - A government contract awarded without competition to a Halliburton Co. (HAL) subsidiary to fight oil well fires in Iraq is worth at least $7 billion over two years, the Army Corps of Engineers has disclosed to Congress.

The contract also allows Halliburton subsidiary KBR, an engineering and construction company, to earn another 7 per cent in profit, valued at $490 million.

The corps released the details in response to an inquiry by Rep. Henry Waxman of California, the top Democrat on the House Government Reform Committee.

Waxman and Rep. John Dingell, D-Mich., have asked for an investigation into how the Bush administration is awarding contracts for the reconstruction of Iraq, which could cost as much as $100 billion. They also want the General Accounting Office, the investigative arm of Congress, to determine whether Vice-President Dick Cheney's former company may have received favourable treatment in their Pentagon contracts.

Lt. Gen. Robert B. Flowers, the Corps of Engineers commander, said in his letter to Waxman that KBR was asked to develop plans to restore Iraq's oil infrastructure based on an existing contract with the company that was awarded in December 2001.

"To invite other contractors to compete to perform a highly classified requirement" that KBR already was involved in "would have been a wasteful duplication of effort" that would have delayed war planning, Flowers said, adding that the agreement was structured to control costs.

Waxman said the response raises new questions, including when KBR was asked to develop the plan or when the decision was made to implement it.

"It also is surprising to learn that (KBR) is apparently the only company capable of performing this work in possession of the requisite security clearances," Waxman said in a new letter asking for more answers.

Waxman acknowledged that the Bush administration may have had valid reasons for granting a contract without competition for emergency war work, but "it is harder to understand ... what the rationale would be for a sole-source contract that has a multiyear duration and a multibillion dollar price tag."

He asked Flowers to provide information about how the cost of the work was determined and when the Army would replace the contract with one awarded through competition.

Waxman has said federal procurement data shows the government has awarded KBR work worth more than $624 million from October 2000 through March 2002.

He said there had been previous problems with KBR, including overcharges, such as:

A GAO finding in 1997 that the company billed the Army for questionable expenses for work in the Balkans, including charges of $85.98 per sheet of plywood that cost $14.06.

A year 2000 follow-up report on the Balkans work that found inflated costs, including charges for cleaning some offices up to four times a day.

$2 million in fines paid in February 2002 to resolve fraud claims involving work at Fort Ord, Calif. The Defence Department inspector general and a federal grand jury had investigated allegations by a former employee that KBR defrauded the government of millions of dollars by inflating prices for repairs and maintenance.

The Securities and Exchange Commission began in December a formal investigation into Halliburton's accounting practices, focusing on an accounting change made in 1998 during Cheney's tenure as CEO.