The Master Builder

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Officials at the company bristle at the suggestion that Halliburton has had an easy ride in Iraq. Thirty-five of its employees have been killed there so far, and work on some projects has been stalled for months because of repeated insurgent attacks. Despite all this, Halliburton pushed Iraq's oil production back to prewar levels of 2 million bbl. a day in December, three months ahead of schedule, and delivered 1.8 billion liters of fuel via 700 trucks on the road daily in Iraq and Kuwait.

Yet Halliburton faces continuing accusations of overcharging and poor management. In May, the Army decided to suspend (for the second time) $159.5 million it owed KBR for running 64 dining halls across Iraq — the latest in a series of disputed bills and erroneous cost estimates. Representative Henry Waxman, a senior Democratic member of the House Government Reform Committee, says military contractors in Iraq don't have enough competition or oversight to keep them honest. "This is a great deal for Halliburton and Bechtel, but it's an absolutely horrendous arrangement for the taxpayer," says Waxman, who calls it "a recipe for waste, fraud and abuse." The bad news has been worrying enough that the credit-rating agency Standard & Poor's said last week it would keep a close eye on Halliburton.

Why would a company like Halliburton, which, after all, runs a successful oil-field-services business far removed from Iraq, agree to stay there? Profits. Iraq contracts have added $5.7 billion to Halliburton's revenues since January 2003, accounting for almost all the company's growth at a time when it was struggling with $4 billion in asbestos claims. The fact is, war is one of Halliburton's specialties. The firm's comprehensive troop-support contract, called LOGCAP, and its southern Iraq oil-field-rehabilitation contract, known as Restore Iraqi Oil (RIO), require Halliburton to supply whatever the military needs, determined by a constantly shifting set of priorities.

Halliburton's CEO, Dave Lesar, points out that "there are very few companies in the world that could or would adapt this quickly while, at the same time, [financing] an operation of this magnitude." He's right: only two other U.S. companies, DynCorp and Raytheon, bid for this kind of massive logistical responsibility in the last bidding round. Under the terms of its LOGCAP contract, KBR had less than three weeks to provide 27 dining facilities throughout Iraq for 120,000 troops.

Halliburton argues that in any project this large, there are bound to be problems. No one expected how quickly the troop levels would grow, and Halliburton was not prepared for the enormous size of the job — and the added accounting burden. "Our control system was not ready for the surge of activity," Lesar admits, saying the company has since beefed up its auditing. The criticism may sting, says Lesar, an accountant by training, but he takes it as a given in the business of war. Brown & Root, which merged with Halliburton in 1962, has provided support services in every American war since World War II.

But lack of oversight and transparency have created the opportunity for corruption. Businesspeople working in Iraq, Kuwait and Jordan (two major sources of supplies for Iraq), allege that Halliburton's unchecked power to choose contractors and send the bill to the military opens the door to kickbacks. Halliburton says it employs 54 auditors to monitor all its transactions.