Calls for debarring Halliburton hasty, analysts say

Talk of barring oil services provider Halliburton Co. from future government work because of possible cost overruns on an Iraq contract is very premature, according to a former Defense Department lawyer.

"A mere dispute over pricing" would not justify blocking Halliburton from new government contracts, said Sam Gdanski, former assistant counsel at the Pentagon. Gdanski is now in private practice in New York.

After an audit revealed that Halliburton may have overcharged the Defense Department for gasoline imported from Kuwait to Iraq by as much as $61 million, Sen. Joseph Lieberman, D-Conn., called for an investigation into the oil services provider's "fitness to receive federal contracts." The potential cost overruns raise "serious questions" about Halliburton and warrant a careful evaluation of whether the company "should be considered for suspension or debarment proceedings," Lieberman said in a Dec. 16 letter to Defense Secretary Donald Rumsfeld.

Under the Federal Acquisition Regulation, agencies can suspend or debar contractors for various types of misconduct, including fraud, embezzlement and forgery. Suspension is temporary, while debarment can last three years or longer.

But agencies cannot justify a suspension or debarment unless they are able to show that a company has engaged in a "pattern of consistent misconduct," Gdanski said. A criminal indictment or conviction would provide grounds for barring a contractor from future federal work, he said, but even then "it's not an automatic thing."

A variety of large government contractors have escaped debarment and suspension despite repeated allegations or court findings of misconduct, said Danielle Brian, executive director of the Project on Government Oversight, a nonprofit watchdog group. In a May 2002 report, the group found that from 1990 to the beginning of 2002, the government's 43 largest contractors, including General Electric and Lockheed Martin Corp., paid about $3.4 billion in fines, restitution and settlements for breaking the law or engaging in unethical conduct, but only one received a suspension.

Halliburton has "certainly exhibited arrogance," in its handling of the recent allegations, Brian said. But some companies have illegally exported weapons and other technology, she said. "I'm not sure Halliburton is really competing in the big leagues with those guys," Brian said. "Let's get those guys first."

Steven Kelman, head of the Office of Federal Procurement Policy during the Clinton administration and currently a professor at Harvard University, said suspending or debarring Halliburton would be a "very extreme" move. "You [would] need a pattern of conscious fraud," he said.

In a second letter to Rumsfeld, dated Dec. 18, Lieberman claimed 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." Halliburton issued a Dec. 18 statement denying these charges and adding that the company will not "debate these issues within the context of a political campaign, for either party."

Even if Lieberman's charges have merit, the current dispute addresses a "small part of a larger contract," Kelman said, making it even more unlikely that Defense would seek to debar or suspend the company.

If Defense officials find that Halliburton did in fact charge too much for fuel, either knowingly or by accident, the department has an alternative method of punishment available, Gdanski and Kelman said. Defense officials must consider a company's overall past performance when awarding new performance-based contracts, they explained. Pentagon officials could use poor performance on the Iraq fuel contract as a justification for rejecting Halliburton's bids on future work, they said.