Iraq inquiry adds to Halliburton's woes

Halliburton, the US engineering company, has warned that the reimbursement of funds to the Pentagon after accusations that it overcharged for work in Iraq could "adversely affect" its liquidity.

In a submission to US watchdog the Securities and Exchange Commission yesterday, the Houston-based company revealed the Defence Contract Audit Agency, controlled by the Pentagon, had recently issued a report criticising Halliburton's work in Iraq.

The report dealt with deficiencies over logistics contracts that Halliburton's KBR engineering and construction unit won for work in Iraq, specifically the timely updating and formalising of documentation.

The report is "likely" to result in a formal audit, Halliburton said.

"As a result of an increase in the level of work performed in Iraq or the DCAA's review of additional aspects of our services performed in Iraq, it is possible that we may, or may be required to, withhold additional invoicing or make refunds to our customers, some of which could be substantial, until these matters are resolved," said the company.

"This could materially and adversely affect our liquidity."

The company, once run by the US vice-president, Dick Cheney, is the subject of several federal investigations.

Halliburton agreed last month to withhold billing on $140m (?76m) for food services, pending a Pentagon investigation into how subcontractors charged for meals served to troops in Iraq and Kuwait.

Pentagon auditors have also suspended payment on more than $36m (?19m) in invoices submitted at seven dining facilities.

In addition, the Pentagon has opened a criminal investigation into a possible $61m (?33m) overcharge for the delivery of fuel to Iraq from Kuwait.

Halliburton, which said its revenue from government services in Iraq came to $3.6bn (?1.9bn) in 2003, blamed the problems on a lack of resources, poor telephone and computer systems and a steep increase in customer demand.

The company said the withholding of payments by the government or the reimbursement of funds could force it to borrow more at a time when its credit rating is weak.

Rising debt could be a problem for the company as it prepares to put money into a trust to settle current and future asbestos lawsuits. It also faces payments on a troubled construction project in Brazil.

Halliburton disclosed other investigations in its SEC filing besides those connected to Iraq.

The US justice department is reviewing possible overbilling in logistics work for the army in the Balkans, while the SEC is looking into alleged illegal payments linked to a Nigerian plant.