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Halliburton rethinking contracting role in Iraq

The Halliburton Co signaled on Tuesday that it might seek to lessen its role as the largest private contractor in Iraq after learning that the US Army was planning to break apart its largest contract in the country to attract additional bidders for the work.

The Army's decision, described in an internal memorandum late last month, would effectively divide more than US$12 billion of work in Iraq among several companies instead of one. Halliburton has come under criticism for its handling of the contract, including accusations that it overcharged the Department of Defense for some of its services.

Halliburton, the US' largest military and oil-services company, sought on Tuesday to portray the Army's decision as an opportunity to derive more profit from work it chooses to rebid for. Much of Halliburton's operations in Iraq, which includes providing food and laundry services and collecting trash for American soldiers, has been decried by investors as something of a financial drag on the rest of the company.

"If we do choose to rebid, we're going to jack the margins up significantly," David Lesar, Halliburton's chief executive, said Tuesday in comments to investors at a conference in New York.

"I'm not sure we're going to rebid if it's hacked into too many pieces in Iraq," he said.

An Army official who declined to be identified confirmed the service's intention to break up and rebid the contract.

A senior Army spokesman said the Army was preparing a statement on the decision but was unable to complete it Tuesday.

The Army memo, whose contents were disclosed by the Wall Street Journal on Tuesday, suggested that the US Army Field Support Command should immediately start to find ways to open the contract to other companies. Wendy Hall, a spokesman for Halliburton, said that the Army's decision was not related to a decision pending at the Defense Department on whether to withhold 15 percent of payments to the company because of inadequate accounting related to its work in Iraq.

"This is not about problems or a penalty," Hall said.

The Army's move comes at a crucial juncture for Halliburton, which is trying to pull the unit responsible for its largest Iraq contract, KBR, out of bankruptcy proceedings resulting largely from asbestos lawsuits. Halliburton is also grappling with several other problems, some dating from the period in the 1990s when Vice President Dick Cheney was the company's chief executive. Cheney stepped down from that position in August 2000 after nearly five years at the helm of the company.

One of Halliburton's main challenges is the scrutiny it has come under for its involvement in a US$5 billion venture to build a large natural gas complex in Nigeria in the 1990s. The company disclosed last week that it had uncovered a plan conceived by the venture to pay bribes to win contracts in Nigeria, following the initiation of an investigation in June into the venture by the US Securities and Exchange Commission.

Halliburton already severed ties over the summer with the former chairman of Kellogg Brown, Albert Stanley, after investigations showed that Stanley might have secretly channeled money from the Nigerian payments scheme to a Swiss bank account.
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