WASHINGTON – Senate Governmental Affairs Committee Ranking Member Joe Lieberman, D-Conn., today brought to light new revelations suggesting that auditors for Halliburton Corporation warned the company that it was overcharging the U.S. Government for importing Kuwaiti fuel into Iraq. In a letter to Secretary of Defense Donald Rumsfeld, Lieberman revealed that the Defense Contract Audit Agency (DCAA) informed the Committee that it had discovered a draft Halliburton audit warning that the company was in violation of federal procurement law. Halliburton has denied any wrongdoing or responsibility for overcharging. Lieberman called for an immediate investigation into this new information.
“This extraordinary internal audit suggests that Halliburton had been previously warned by its own auditors that it was overcharging for the fuel, but may have ignored these important warnings and continued to charge the federal government inflated prices,” Lieberman said in his letter. “Not only does this information [provided by the DCAA] suggest that Halliburton likely was aware of its overcharges and that it was violating federal procurement regulations, it also suggests the extent to which the company overcharged the federal government is far greater than previously acknowledged… The American people deserve to know the truth behind these overcharges by the Halliburton Corporation, and I, therefore, ask that you begin an immediate investigation into this new information.” In addition to revealing Halliburton’s internal audit, Lieberman also learned from the DCAA that the previously calculated and reported $61 million overcharge by Halliburton underestimated the cost to the U.S. taxpayer because it only accounted for fuel imported as of September 30, 2003. Lieberman also discovered that, despite Halliburton’s claims, no competitive bidding process was followed to award the subcontract for importing fuel from Kuwait. Earlier this week, Lieberman called on the Secretary of Defense to evaluate whether Halliburton should be considered for suspension or debarment proceedings, and in November he called for the Department of Defense Inspector General to conduct an investigation of the prices that Halliburton has charged for the Iraqi fuel imports. The full text of today’s letter follows. December 18, 2003 The Honorable Donald H. Rumsfeld Department of Defense The Pentagon Washington, D.C. 20301 Dear Secretary Rumsfeld: Yesterday, the Deputy Director of the Defense Contract Audit Agency (DCAA), Michael Thibault, informed staff of the Governmental Affairs Committee of highly disturbing new information about the extent and nature of Halliburton’s overcharges for fuel imported into Iraq from Kuwait. As you may know, I have previously called for your department’s inspector general to conduct an investigation of the prices that Halliburton has charged for these fuel imports, and I have asked you to evaluate whether the Halliburton Corporation should be considered for suspension or debarment proceedings as a result of the recent allegations regarding overcharges for the fuel. The new information that was made available to the Committee staff yesterday only furthers my concerns regarding the issue. This information demands your immediate attention and requires a thorough investigation by your department. Mr. Thibault revealed that auditors working for the Halliburton subsidiary Kellogg Brown & Root (KBR) had prepared a draft audit warning the company of serious problems with its fuel importation contracts with the U.S. government. The Halliburton auditors warned that the prices the company was charging to import fuel from Kuwait into Iraq were excessive, and that the company’s prices and contracting procedures were in violation of Federal Acquisition Regulations. An auditor with the DCAA discovered this internal Halliburton document in the course of a routine audit, took extensive notes on its contents, and then presented the document to KBR officials. Since then, Halliburton has refused requests by DCAA officials to provide a copy of the document. This extraordinary internal audit suggests that Halliburton had been previously warned by its own auditors that it was overcharging for the fuel, but apparently ignored these important warnings and continued to charge the federal government inflated prices. Mr. Thibault also indicated that the publicly reported preliminary estimate of Halliburton’s overcharges for fuel delivery is too low. DCAA auditors have compared the prices that Halliburton charged for fuel transported from Kuwait ($2.27 per gallon) with the prices that the company charged for importing fuel from Turkey ($1.18 per gallon) and calculated that the federal government had been overcharged a total of $61 million, since the company could have saved that amount by importing all of its needs from Turkey. However, according to Mr. Thibault, the calculated overcharge of $61 million only considered fuel that was delivered as of September 30, 2003. Since Halliburton has continued to import fuel from Kuwait, the estimated overcharge will undoubtedly increase when the post September 30th fuel deliveries are taken into account. Furthermore, as Mr. Thibault conceded, the price Halliburton negotiated for imported fuel from Turkey may not be the best point of comparison when determining the reasonableness of Kuwaiti fuel prices. Fuel should cost considerably less when imported from Kuwait, because transportation costs are much lower. The true cost of Halliburton’s overcharges are therefore likely to be much higher than the calculations made in DCAA’s preliminary audit, a future audit may conclude. There is one final point raised by Mr. Thibault that should be brought to your attention. Halliburton claimed to U.S. contracting officials that the company used a competitive bidding process, soliciting multiple bids, to award the subcontract for importing fuel from Kuwait. However, a competitive procedure would not be possible, since only one company – Altanmia Commercial Marketing Co., which was awarded the subcontract – is licensed by the Kuwaiti government to export fuel from the country. This raises serious questions about why Halliburton consented to be overcharged by its Kuwaiti subcontractor, and why it misrepresented the nature of the contract. It is worth noting, first of all, that Halliburton does benefit from its subcontractor’s overcharges, as its payment from the U.S. government is a percentage of the total contract cost – the profit motive itself may well be one explanation for Halliburton’s actions. Recent news reports have also suggested that the Army Corps of Engineers and the U.S. embassy in Kuwait may have directed Halliburton to purchase oil from Kuwait. If true, such behavior could have been grossly inappropriate, and these allegations deserve an immediate inquiry. As Mr. Thibault confirmed, even if a U.S. government official did issue such instructions to Halliburton, that would be no excuse for Halliburton to have incurred such excessive overcharges. In all, the information that Mr. Thibault provided to the Committee staff is extremely troubling. Not only does this information suggest that Halliburton likely was aware of its overcharges and that it was violating federal procurement regulations, it also suggests that the extent to which the company overcharged the federal government is far greater than has been previously acknowledged. In addition, this information raises new questions regarding why Halliburton officials decided to import exorbitantly priced Kuwaiti fuel, and why it inaccurately characterized the contract to U.S. officials as having been competitively bid. The ongoing DCAA audit has provided a helpful starting point for such an investigation, but the DCAA’s audit only seeks to determine the amount of the overcharge, and is not responsible for investigating possible misdeeds by Halliburton or government officials. The American people deserve to know the truth behind these overcharges by the Halliburton Corporation, and I, therefore, ask that you begin an immediate investigation into this new information. Thank you for your prompt attention to this request. Sincerely, Joseph I. Lieberman Ranking Member cc Department of Defense Inspector General Joseph E. Schmitz