US army to prune Halliburton bills

The United States army will withhold payment of up to $60m (£32.8m) a month on future invoices submitted by Halliburton, the firm formerly run by vice-president Dick Cheney, due to a continuing dispute over work done in Iraq.

The decision contradicted a statement issued by Halliburton on Monday saying that it had won a suspension of the longstanding threat to withhold payments.

Shares in the oilfield services and construction company fell more than 4% in early trade on Wall Street after the ruling was announced. They have dropped 16% since the beginning of the month.

The decision puts Halliburton under further financial pressure. The company needs cash to pay for a $2.3bn settlement of asbestos injury lawsuits stemming from a division acquired during Mr Cheney's tenure as chairman and chief executive.

The US army said it was withholding 15% of payments to Halliburton unit Kellogg Brown & Root for its contract to provide logistical support, including clothing and housing troops. A spokeswoman for the army field support command said that could amount to $60m a month.

The army is alleging that Halliburton has been overcharging for its services in Iraq. A Pentagon audit leaked last week claimed that Halliburton had so far failed to adequately account for $1.8bn of bills submitted. Halliburton, which also has a contract to repair damage to the oilfields in Iraq, has total government contracts worth up to $18bn.

The company said it would fight the army's decision in court. "Halliburton is confident the government action is not justified," it said.

Halliburton tried to explain its gaffe on Monday, when it claimed to have been given assurances that the army would grant an extension. It said that statement was "accurate at the time based on clear oral assurance from senior Pentagon representatives". The US army had twice extended the deadline on the threat to withhold 15% while investigations continued.

Halliburton said it did not believe the Pentagon action would hurt its liquidity because it intended in turn to withhold 15% of payments to its subcontractors.

The company has become a liability for the Bush administration as it stumbles from scandal to scandal. Halliburton has argued it is the victim of a smear campaign.