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Rhetoric and Reality

Chris over at En Banc points to this article about how Halliburton has been probed for overbilling. I can't tell if he thinks it's damning or not; certainly Howard Dean does:

"We've recently learned what many Americans have suspected for a long time -- special-interest contributor Halliburton is overcharging the American taxpayers," said former Vermont governor Howard Dean, a leading Democratic presidential contender. "Now this president is preventing entire nations from bidding on contracts in Iraq so that his campaign contributors can continue to overcharge the American taxpayers."
Ignore for a moment the fact that it's inconsistent of Dean to be all for 'buy American' if you're a steel manufacturer, but not support a similar policy for massive government contracts in Iraq. Even pass by the obvious question of why the EU, and particularly France, should get an economic windfall from a policy they bitterly opposed, absent some evidence it will be particularly useful. What are these accusations of dire overbilling? Apparently passing on the costs of a third-party contract for oil through Kuwait, and a communications error:
Halliburton's problem with the contract, a Pentagon official said, was that it failed to adequately evaluate the costs and operations of its Kuwaiti subcontractor. On the contract to operate mess halls, the official said that Halliburton told the Pentagon its subcontractor price would be $220 million. But auditors examining Halliburton's operations found that at that time, the company already had awarded a subcontract under which the cost was actually $67 million lower than that.

"You'd have to be pretty stupid" to do this on purpose, the official said, implying that it was an easy discrepancy to catch. He said he believes this was "a clear, obvious, miscommunication error" that resulted from a "disconnect" between the company's operations in the Mideast and its contracting office at its Houston headquarters.


At least that 'error in communication' is the kind of thing that happens in contractor/subcontractor situations, and why you audit. (Indeed, this has some relevance to my Contracts exam, in which contractor relationships are making common appearance.) Unless Dean has more information than the Washington Post, he's ascribing malice to what is most likely simple error.

Here's a prediction: the results of the audit will show no intent to defraud, but instead either simple errors or (in the case of the oil overbilling) a case of restrictive conditions in government contracts increasing requirements costs.

Here's another: if the prediction above is wrong, I'll publish an entry linking back to this indicating my error. However, Howard Dean will never hold himself accountable for an accusation of fraud. Nor will most Deaniacs. Indeed, finding no fraud will merely be more proof of greater 'corruption.'

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I find it hard to believe you're trying to defend this one. But lets start with the big one, Under international law an occupying power is obliged to open these tendering processes up, not doing so is not acting in the best interests of the occupied state. The US is also expected to act as trustee for the assets of the nation it is occupying. Plans to sell off Iraqi assets are illegal and any Iraqi government should start by renationalising everything Bremner sells and selling it again. Bush's comment on this came straight from the school playground 'international law, huh? I guess I'll have to ask my lawyer'. If any European leader said that they'd be out of office by the end of the week. Still, what's interesting is that his lawyer (James Baker III) is currently presiding over the carve up of Iraqi soverign debt - something that should be handled by the world bank. 10% of that debt is owed to the Saudi's who are major Baker clients. As for Halliburton they've been caught out on this before. They've also been given a cost + contract which means *after accounting* you're allowed to make a 20% profit. Now having studied accounting I can confidently say that if Halliburton are making less than 30% they're muppets. Which makes the people who gave them 30% (hell or even 20) even bigger muppets. Do I think Dean would apologise if Halliburton are cleared - not likely. But politicians don't do this. When Bush apologises for WMD, Mission Accomplished (what that Banner, someone elses idea, nothing to do with us...) and all the rest maybe I'd care.
All reasonable arguments (though I'm tempted to take international law soon merely so that I can more sensibly argue the 'under international law' points--near as I can tell, it's more complicated than newspaper analysis would make it). However, not the arguments Dean actually made. Nonetheless, muppetry or not in the writing of the contract, and all the other issues aside: if you were at risk of allegations of libel, Martin, would you make an accusation of misconduct based upon such information? Or would you wait until it's been investigated?
Do I think Dean would apologise if Halliburton are cleared - not likely. But politicians don't do this. When Bush apologises for WMD, Mission Accomplished (what that Banner, someone elses idea, nothing to do with us...) and all the rest maybe I'd care. Oh yes, Martin: are you telling me you see absolutely no difference between accusing someone of criminal misconduct, and making claims about one's own policies?
Hmm. I suspect that so big and labrynthine is Halliburton you can accuse it of fraud secure in the knowledge that they're guilty of it somewhere. More generally I think the company reeks like a rotting corpse (whose I'm not sure) You think the fraud is 'a mistake' because it's so seemingly simple. In retrospect the annual reports of Enron and Worldcom should have been enough to alert the world to what was going on years in advance, and the frauds while massive were both simple and obvious (probably the most shocking thing about the whole lot). I suspect that the fraud is a fraud and that within Halliburton there is a culture of overbilling the Pentagon and seeing what you can get away with. Something similar certainly exists on major projects for the UK govt. The end result will probably be a restatement of the numbers, Halliburton pay something out and the costs of pursuing a fraud case outweigh the benefits of a conviction. So I suspect that both I and Dean will be left saying that there is no corruption found due to greater corruption elsewhere. You'll believe we're wrong, I'll believe we're right and we won't have advanced very far ;-).
Reading quickly the story you link to, it appears the quotes you cite about the simple accounting error were from a contract pertaining to mess halls. The story doesn't say that the fuel contract issues were "fairly standard accounting errors," it says the mess hall issues were like that. Which only makes criticism of Halliburton on the fuel contracts more valid -- it has a pattern of "miscommunication" and "error" in its own favor to the tune of millions of taxpayer dollars. I know a lot of accountants who would be outraged at the claim that accounting can't do better than that; therefore, the U.S. gov't shouldn't be doing business with companies who are so consistently prone to "error." The Pentagon (and the American people) should simply have higher standards, don't you think?
Sigh. Fine, try this article, linked off of Halliburton's website. Now, don't take my word for it, just because I used to work in international trading, but if you've got friends who think that you never uncover accountancy discrepancies in an audit during events as rushed and as large as Halliburton is handling, please, forward me their resumes, I'll see if I can't get them jobs. The fact of the matter is, the world's a more complicated place. The story with the fuel seems to be that the army set the spec's high enough that only one supplier fit the bill. Then Halliburton suggested a second supplier, and started using it, and now someone has asked why they weren't using that supplier in the first place. My guess (care to take a bet, ai?) is that the auditors will eventually announce that the reason the Turkish contract wasn't taken to begin with was that it didn't meet the initial specs. These things happen with complex, quick contracts for supply between purchaser and supplier. Perhaps they'll find this was some kind of shenanigans, but I doubt it: it would be too easy to come out in an audit.

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