Serious cost overruns and "poor performance" have plagued the Halliburton Company's continuing $1.2 billion contract to repair Iraq's vital southern oil fields, a new State Department report says.
The news about Kellogg, Brown & Root, a subsidiary of Texas-based Halliburton, adds an additional layer of troubles to the company's multibillion dollar operations in Iraq.
Among guerrilla attacks, the unexpectedly decrepit state of oil facilities and delays in repairs, Iraq's oil output of 2.1 million barrels a day in February was lower than it was last fall, says the report, a quarterly update on Iraqi reconstruction that was delivered to Congress last week. Disappointing oil exports are worsening the Iraqi transitional government's budget deficit, which the report estimates could reach $5 billion this year. The report does not detail what it called the poor performance and excess spending. But it said that on Jan. 19, the American Embassy took the unusual step of issuing a "Cure Notice," a threat to terminate the contract. Kellogg, Brown & Root replaced some senior managers but the government remains dissatisfied, the report says.
The embassy has asked a KBR rival, Parsons Corporation, which won the contract to work on northern oil fields, "to execute some of the remaining work" in the south, originally meant for KBR. KBR has previously been criticized for excess spending in its multibillion dollar contract to provide logistical support for the military and in an earlier, $2.2 billion contract for oil repairs and fuel imports that was granted secretly as the Iraq invasion began.
But the State Department report provides the government's strongest public criticism yet of KBR's performance in southern Iraq over the last year in a competitive contract. Parts of the report were described Saturday in The Los Angeles Times.
A Halliburton spokeswoman, Beverly Scippa, said Monday in an e-mail message that the company had "made adjustments" in management of the oilfield project and was working with the government to "resolve the outstanding cost reporting issues."
New questions about the earlier oil and fuel contract were also raised Monday when a Congressional committee released data from five audits of the program, showing that Pentagon specialists had questioned $212 million of $1.69 billion in bills that KBR submitted for fuel imports in 2003 and 2004. The data were released by the minority office of the House Committee on Government Reform.
The company says that it performed admirably under difficult circumstances in the aftermath of the invasion of Iraq and that cost disputes "are part of the normal contracting process."
Accelerating a shift that began last year, the American Embassy has reallocated an additional $832 million in planned spending away from huge projects managed by American companies toward smaller repairs using local businesses and the training of Iraqis to maintain power and water systems.