Halliburton retreats from Iraq logistics work

With sale of subsidiary KBR, company distances itself from highly criticized federal contract.

Halliburton Inc. has recently taken steps to back away from its prominent role in federal contracting in the Middle East, with a late February announcement that it would sell its subsidiary KBR Inc. and a notice this weekend that it would move its corporate headquarters to the United Arab Emirates.

Halliburton will move its headquarters from Houston to Dubai to focus greater attention on its Eastern Hemisphere operations, according to a Sunday announcement. The company, which was led by Vice President Dick Cheney before he took office, also recently announced that it would sell its controlling stake in KBR, a subsidiary that has been a conduit for criticism of the administration's military operations and reconstruction effort in Iraq.

A federal contracting expert who asked not to be named said Halliburton's moves likely would help the company's image. "In the public mind, Cheney is linked with Halliburton … so it can't but help that they're moving out of government contracting," the expert noted.

Under the often convoluted rules of federal contracting, the move to Dubai could raise questions for how Halliburton conducts security-related work, but the company is unlikely to be seriously affected by provisions favoring U.S. companies, observers said.

For work requiring security clearances, agencies generally require submission of documents about foreign ownership, control and influence, known as FOCI, according to Steve Charles, co-founder of McLean, Va.'s immixGroup, a firm that helps businesses obtain and comply with federal contracts. Firms with significant foreign influences, for example those in which the corporate board has more foreigners than U.S. citizens, can be barred from working with classified information.

One way around that can be for a company to set up a subsidiary controlled by U.S. citizens that does meet security requirements, over which the parent cannot, by charter, exercise control over certain types of decisions or information. The subsidiary can then compete for classified work and pass profit back to its parent company, Charles said.

Melissa Norcross, a public relations manager for Halliburton, on Monday declined to say whether the company would continue to hold government contracts. "The work that is being performed in support of U.S. government contracts in the Middle East region is being done by KBR, which is currently in the process of being separated from Halliburton," she said.

Another set of provisions that govern companies with foreign ties is in the 1933 Buy American Act, which applies to procurement of products, and requires that 50 percent of a product's value originate in the United States. The 1979 Trade Agreements Act, an exception to the Buy American Act, allows the purchase of products that are substantially transformed in the United States or another country that has a government procurement trade agreement with the United States.

Charles said Halliburton would probably not be heavily influenced by these provisions because of its focus on gas and oil industry services, rather than products.

Norcross said Halliburton would not gain favorable tax treatment as a result of the headquarters change. "We anticipate absolutely no tax benefits from this decision," she said, downplaying the move.

Dave Lesar, the company's president and chief executive officer, will be based in Dubai, but other key functions including chief financial and operating officers and the general counsel will continue to be based in Houston, Norcross said. "As with any large company, our CEO travels extensively, and our previously announced commitment to expanding our presence in the Eastern Hemisphere makes having a Dubai office a practical accommodation to the needs of our customers," she said.

A spokeswoman for the House Oversight and Government Reform Committee, which has undertaken investigations into Halliburton's federal contracts, said the committee was considering holding a hearing into the company's latest announcement but had not reached a decision.

Halliburton was the sixth-largest federal contractor in fiscal 2005, with $6.1 billion in federal contracts, based on contracting data reported by agencies and included in Government Executive's Top 200 Contractors special issue.