Critics of U.S. policy in Iraq find a target in Dick Cheney's former company.
By DAVID BALLINGRUD
Published December 21, 2003
One night in 1919, in a tiny, one-room home in dusty Wilson, Okla., Erle Palmer Halliburton found himself short the cash needed to make the next payroll for his fledgling business -- the New Method Oil Well Cementing Co.
He and wife, Vida, ran the business from the home and were up late, fretting about money and dreaming up new ways to secure wells with cement. Erle described his ideas and Vida drew them out with pencil and paper.
It was about 1 a.m., Vida would later recall, with the conversation drifting between bank accounts and oil wells, when light from a small lamp caught the surface of her wedding ring.
"I sat there admiring it when the thought came to me," said Vida in The Legend of Halliburton by Jeffrey L. Rodengen. "Here is the money we need. At first Hubby would not listen to me . . . but I argued we could get it back; so we went to sleep all thrilled with the new idea of cementing, the new means of getting jobs, and the money."
The ring was pawned, and later redeemed, and the formidable twosome of Erle and Vida went on to great success. Erle Halliburton, "genius with cement," died in 1957 on speaking terms with presidents and one of the richest people in the nation. With the Halliburton fortune estimated at $100-million, Vida's wedding ring was secure.
Today the New Method Oil Well Cementing Co. has become a publicly traded, global giant named for its founder and probably bigger than he ever imagined. Its 85,000 employees are in more than 100 countries providing oil field, engineering and construction services. In the 12-month period ending June 30, the company's income was just short of $13-billion.
But Halliburton is more than just a big company. It has become a big target -- a lightning rod for much of the frustration, anger and suspicion that surrounds the Bush administration's rebuilding program in Iraq.
Through its subsidiary Kellogg Brown & Root (KBR), Halliburton has the largest private-sector role in the Iraq reconstruction.
The company's essentially open-ended, "cost plus" contracts with the U.S. Army Corps of Engineers to repair Iraqi oil fields and support U.S. troops are valued at more than $5-billion now, and could be on their way to much higher levels -- perhaps $15-billion -- over the next few years.
The company's critics complain that some of these fat contracts were awarded without competitive bidding -- a success traceable, they say, to Halliburton's political connections. Vice President Dick Cheney, a key figure in the administration's war effort, ran Halliburton from 1995 to 2000, and the company extended its reach around the globe during that period. When Cheney left Halliburton in 2000 to run for vice president, he received between $20-million and $33-million from the company, according to published reports, and is still getting $160,000 a year in deferred income.
Moreover, Halliburton's detractors say, the company has a history of overcharging the U.S. government for its services.
The high cost of gasoline
Earlier this month, Pentagon auditors said the company may have charged the U.S. taxpayer up to $61-million too much for delivering gasoline to Iraqi citizens. They also said the company submitted a proposal -- later rejected -- for cafeteria services that appeared inflated by $67-million.
Halliburton's president, Dave Lesar, denied the overcharge allegations, saying the company's Kuwaiti contractor was the only one that met the contract's requirements for imported gasoline, and that Halliburton earned only "a few cents on the dollar" for delivering the fuel.
In an "open letter" published Friday in the Wall Street Journal, Lesar claimed the company actually saved the U.S. taxpayers $164-million by suggesting Turkey as a source for less expensive fuel.
Halliburton also got a measure of support from the government when the Pentagon's comptroller said there was no basis to think that any overcharge was deliberate. It appeared to stem from an outdated accounting and cost-estimating system, said Dov Zakheim.
Democratic presidential candidates pounced on the issue, however, citing it as proof of Halliburton's favored status in the Bush administration. Finally, to halt a growing controversy, Bush said on Dec. 12 that the vice president's old firm should repay the government if it overcharged for gasoline delivered in Iraq. "If there's an overcharge, like we think there is, we expect that money be repaid," he said.
Halliburton's contracts were won "because of what we know, not who we know," said spokeswoman Wendy Hall. "There have been many allegations that Halliburton received the contract for the reconstruction of Iraq because of political influence. Certainly it's easier to assign devious motives than to take the time to learn the truth."
In addition to work repairing Iraq's oil fields, she said, "our (4,500) employees in the Middle East are building housing, preparing meals, delivering the mail and providing many other vital services for our troops."
For "safety and security reasons," she added, the company does not discuss in detail where its employees are in the region, nor the security measures taken to protect them.
"Our people are sharing the hardships and the risks," she said. "Three have lost their lives while working there."
The Cheney years
Halliburton has a long history of work for the U.S. government, but the current controversy begins in 1991, after the Persian Gulf War, when then-Defense Secretary Cheney commissioned Halliburton subsidiary Brown & Root (later Kellogg Brown & Root, or KBR) to conduct a study on the benefits of military outsourcing.
In December of 1992, as the first Bush administration (including Cheney) was leaving office, Brown & Root was awarded a U.S. Army "supercontract" -- a Logistics Civil Augmentation Program contract, or LOGCAP. It was an umbrella arrangement, renewable every year, that allowed the U.S. Army to call on KBR for all manner of support, including combat and humanitarian assistance, all over the world.
LOGCAP is a "cost plus fee" contract, meaning that the contractor is paid a fee -- usually a few percentage points -- above the cost of the service. For the military, a supercontract such as LOGCAP provides great flexibility. When it needs a service performed, it issues a "task order," and the contractor responds.
In late 1995, now three years out of office, Cheney was named Halliburton's chairman, CEO and president. He quickly launched an ambitious round of acquisitions, according to a corporate monitoring organization called Corporate Watch. The Cheney years saw Halliburton's revenues rise from $5.7-billion in 1994 to $14.9-billion in 1999, fueled primarily by growth outside the United States. Overseas operations went from producing 51 percent of revenue to 68 percent of revenue.
"You've got to go where the oil is. I don't think about it (political volatility) very much," Cheney reportedly told the 1998 annual meeting of the Panhandle Producers and Royalty Owners Association.
But in 1997, the LOGCAP contract was again put up for bid and this time Halliburton lost to another big military contractor, DynCorp International. This did not push Halliburton off the stage, however. According to the Center for Public Integrity, the Clinton Defense Department elected to award a separate contract to Halliburton/Brown & Root to continue work in the Balkans.
Then, in December 2001, a few months after the attack on the World Trade Center in New York, Halliburton won the LOGCAP back again.
The contract was competed for and Halliburton was the proper winner, said spokeswoman Hall. "Part of the deliverables of that contract was to develop a contingency plan to fight oil well fires in case of war with Iraq. When the war began, Halliburton was asked to implement the plan," she said.
Pentagon officials say they later gave Halliburton the more lucrative oil field reconstruction contract -- without bidding -- because it was essential to start rebuilding quickly after the invasion. Further, Halliburton, as holder of the quick-response LOGCAP contract, was already providing logistical help for the U.S. military.
Halliburton was the obvious choice, said Army Corps of Engineers commander Lt. Gen. Robert Flowers. "To invite other contractors to compete to perform a highly classified requirement that KBR (Halliburton) was already under a competitively awarded contract to perform would have been a wasteful duplication of effort," he wrote.
But the oil field contract, which started as a relatively small order for fighting well fires, has grown into the largest reconstruction contract in Iraq. Halliburton has received more than $2-billion so far on that contract.
Separately, Halliburton has been paid about $3-billion for its logistical work, supporting the military with cafeterias, mail delivery and other services.
The total value of both contracts is yet to be determined, but, according to some estimates, could reach $15-billion.
Eleven other Iraq reconstruction projects, awarded to other companies, have paid out almost $2-billion. The largest, to construction giant Bechtel for rebuilding infrastructure such as highways and bridges, has produced more than $1-billion.
Iraq open, but not to all
In coming months the U.S. government is expected to award more than $18-billion in additional reconstruction contracts, and big companies like Halliburton and construction giant Bechtel are well positioned to win their lions' shares.
Early this month, more than 400 people from 30 countries gathered in a Sheraton hotel in Arlington, Va., to discuss how to rebuild Iraq, and, more importantly, how to get a slice of that big money pie.
There were bankers, architects, lawyers, engineers, real estate developers, insurance agents, construction specialists, transportation experts, communication company owners, investment counselors and more than 40 Iraqi officials eager to meet and greet.
"Iraq is open for business," said the New York Times.
But not for everyone.
On Dec. 5, the Pentagon barred French, German and Russian companies from competing for the $18.6-billion, saying it was acting to protect "the essential security interests of the United States."
The directive, issued by Deputy Defense Secretary Paul D. Wolfowitz, represented the most substantive retaliation to date by the Bush administration against American allies who opposed its decision to go to war in Iraq.
Some say the way civilian authorities administer contracts in Iraq already favors big companies such as Halliburton or Bechtel.
"The way the Iraqis see it -- and they call it very accurately -- is that there is a lot of corruption in how the CPA (the Coalition Provisional Authority) has been handling contracts with Halliburton, Bechtel, and the subcontractors," said retired U.S. Army Maj. Bob Bevelacqua, a 13-year veteran of Special Forces and the Pentagon.
"It upsets Iraqis to see subcontractors brought in from South Africa, Germany, England, India and elsewhere to do simple contracts that are not high-tech," Bevelacqua told David Corn in the Nation. "They feel those opportunities for work should go to the Iraqi people. It is their nation; they should probably be involved in rebuilding it."
Trade with Hussein's Iraq
While the Dick Cheney era was a time of rapid expansion for Halliburton, it was not free of controversy.
--During the campaign of 2000, vice presidential candidate Cheney acknowledged that Halliburton did business with Libya and Iran through foreign subsidiaries, but maintained he had imposed a "firm policy," against trading with Iraq.
As secretary of defense in the first Bush administration, Cheney helped run the Persian Gulf War against Iraq, and also helped put together an economic embargo to isolate Saddam Hussein.
"Iraq's different," he told the Washington Post.
But, according to the Post, oil industry executives and confidential U.N. records showed that Halliburton held stakes in two other companies that signed contracts to sell more than $73-million in oil production equipment and spare parts to Iraq while Cheney was chairman and chief executive officer.
Two former senior executives of the Halliburton subsidiaries told the Post they knew of no policy against dealing with Iraq, and one said he was certain Cheney knew about the deals, though he had never spoken about them to the vice president directly.
-- Last year, Halliburton announced that the Securities and Exchange Commission had begun a probe into the company's booking of cost overruns on energy-related construction jobs. This practice accounted for the overruns as revenue, and inflated Halliburton profits by almost $100-million in 1998. The investigation is ongoing.
-- In 1997 the General Accounting Office found that the U.S. Army could not assure the auditors that it was controlling KBR construction costs in the Balkans.
--In 2002, KBR paid $2-million to settle a complaint that it inflated contract prices for work at a military base in California.
Last April, U.S. Democratic Reps. Henry A. Waxman and John D. Dingell asked the GAO, the investigative arm of Congress, to look into Halliburton's Iraq contracts. "The ties between the vice president and Halliburton have raised concerns about whether the company has received favorable treatment from the administration," they said.
A Halliburton's doubts
Thomas C. Halliburton Jr. says he is wary of picking up his newspaper these days.
Halliburton Jr., 51, lives in Tampa, where he works as a real estate agent and a private investigator. Erle Halliburton, the company founder, was his father's cousin.
"Erle Halliburton was an individualist, egalitarian and patriot," Halliburton Jr. wrote recently to the St. Petersburg Times. "Following Pearl Harbor he telephoned Franklin Roosevelt and placed all the company facilities at the disposal of the president. His plants were converted to defense work and his yacht, Vida, was used by the military during wartime."
Erle died in 1957; the company kept the Halliburton name. "Sometimes when I'm reading and listening to the news, I can't help but wonder how Erle would have reacted to today's world events. Would he have telephoned our present-day president and offered him his company and personal resources?"
Tom Halliburton acknowledged that he does not know "all of what Erle Halliburton would have said or done. I do know, however, he never would have profited or even remotely attempted to profit at the expense of his own countrymen or another human being's suffering, regardless of nationality.
"Perhaps his message to the Halliburton company would be, if any of these allegations between you and the Bush administration are true, change your ways now.
"If you can't do that, then at least change your name."
