[PEN-L:36284] Halliburton

["Ian Murray" <seamus2001@xxxxxxxxx>]

March 28, 2003, 11:06PM
Houston company won't get contract
Halliburton off list for rebuilding Iraq
By DAVID IVANOVICH
Houston Chronicle Washington Bureau


WASHINGTON -- Halliburton Co. is not among the finalists for a $600
million government contract to help rebuild Iraq.

The Houston-based engineering, construction and oil-field service giant
has been culled from a short list of companies bidding to repair Iraq's
roads, bridges, schools and other public facilities after the war, a
spokeswoman for the U.S. Agency for International Development confirmed
Friday.

The federal government had solicited bids from five U.S. firms for the
contract. Reports that Halliburton was on the list for a major role in the
war reconstruction had created a political uproar, since Vice President
Dick Cheney once ran the company.

Two firms are still in the running for the contract, USAID spokeswoman
Ellen Yount said. She declined to identify the finalists.

It remained unclear late Friday whether Halliburton had submitted a bid.

Halliburton spokeswoman Wendy Hall declined to comment, referring all
calls to USAID.

While it will not serve as the prime contractor, Halliburton could still
do significant work as a subcontractor. USAID officials have said about
half the value of the contract will filter down to other companies.

The companies reportedly invited in February to bid on for the contract
were Bechtel Group, Fluor Corp., Louis Berger Group, Washington Group
International and Parsons Group. Parsons Group is said to be allied with
Halliburton.

Agency officials had expected to award the contract by Friday. Now a
decision is not expected until sometime next week at the earliest.

The winner of the contract will be expected to direct the massive
rebuilding of Iraq, repairing not only the damage from the war but the
deterioration caused by more than 12 years of political isolation and
economic sanctions.

Within the first six months, the prime contractor will be expected to
repair at least half the nation's major roadways -- some 1,380 miles
worth -- 100 bridges and 3,000 schools. At least 40 percent of the
population that had electricity before the war will have to have power by
that time, while the water treatment facilities in at least 15 cities will
have to be rebuilt by that time.

Federal officials have no illusions that $600 million will be enough to
rebuild Iraq. The contract only extends until the end of 2004, with
options for another two years worth of work after that.

Estimates of the total range from $25 billion to $400 billion, the
Washington-based Center for Strategic and International Studies has said.

Halliburton shares dropped 34 cents to $21.10 in after-hours trading
Friday when the news came out. During the regular trading day, company
shares dipped 6 cents to close at $21.44.

The Army has a long history of choosing Halliburton for its wartime needs,
and the military has generally given it high marks for its performance.

The USAID contract does not cover repair work in Iraq's oil fields.

Earlier this week, the U.S. Army Corps of Engineers handed Halliburton
subsidiary KBR -- formerly known as Kellogg Brown & Root -- an exclusive
contract to deal with the oil well fires in Iraq.

Halliburton has since hired two oil well firefighting firms, Boots & Coots
International Well Control and Houston's Wild Well Control, as
subcontractors.

The Army Corps of Engineers contract is only an interim deal to handle
emergency work. A more lucrative contract to repair Iraq's deteriorated
oil fields will be awarded later after competitive bidding.

Rep. Henry Waxman, D-Calif., has estimated the value of that contract at
perhaps "tens of millions of dollars." But the value of that project is
not expected to be anywhere near the size of the infrastructure
reconstruction project.

Indeed, one source speculated a contract for oil well emergency work was a
"sop" for having a real chance to win the large reconstruction contract.

The oil well fires contract was signed on March 8 but was not announced
until March 24.

"We were under restrictions not to talk about it at the time," it was
awarded, Army Corps spokesman Scott Saunders said.

Halliburton faced no competition for the oilfield contract. In November,
the Pentagon, fearing a conflagration similar to Kuwait 12 years ago, had
hired the firm to draw up a plan to deal with any oilfield fires. That
report, which was classified, put it in place to execute the plan.

The company said it was chosen because it was "the only contractor that
could commence implementing the complex contingency plan on extremely
short notice."

KBR also was the only contractor that saw the report.

That practice, of a contractor writing a classified report and then
getting the job of implementing the plan, is not unusual, noted P.J.
Singer, a fellow at the Brookings Institution and author of the upcoming
book Corporate Warriors: The Rise of the Privatized Military Industry.

"It's happened before," Singer said. "It's a practice across the industry.
It's not a Halliburton thing."

While Halliburton's contract may be limited, the award has raised hackles
from West Texas to the south side of the Capitol.

"This entire deal stinks," said Bob Grace, who helped put out oil well
fires in Kuwait after the Persian Gulf War.

Grace, president of the Amarillo-based petroleum engineering firm GSM,
complained that "there were no other companies considered. It is a
`fox-in-the-henhouse' deal. There was plenty of time to consider all who
are in this business of oil well firefighting. I will be interested to
learn how much of a premium the taxpayers are being charged as a result of
no bidding or consideration of others."

The Halliburton contract is what's known as a "cost-plus" contract. That
means the company will be compensated for its costs and then receive an
additional 2 percent to 5 percent on top of that.

Waxman has written Lt. Gen. Robert Flowers at the Corps of Engineers,
asking him to explain more about the Halliburton contract by the end of
next week.