Two senators proposed Friday that an $87 billion spending bill for Iraq should require competition in most cases for lucrative reconstruction work. The proposal could curtail future controversies over a lack of competition, an issue that has enveloped Vice President Dick Cheney's former company.
Sens. Susan Collins, R-Maine and Ron Wyden, D-Ore., said their amendment would require that funds would be spent on fully competitive contracts, unless the awarding agency notified Congress and explained - in the official Federal Register - why full competition was rejected. The amendment would do little to stop the controversy over Halliburton, run by Cheney before he became the vice presidential candidate in the year 2000.
The company's KBR subsidiary has received noncompetitive work worth $1.2 billion so far to restore Iraq's oil industry. The U.S. Army Corps of Engineers has increased KBR's work several times by adding to its oil mission
Iraq Deals Not Helping Halliburton Stock
Halliburton's KBR engineering and construction division has been awarded a $705 million contract for oil field infrastructure repairs. It has also been awarded a Logistics Civil Augmentation Program (LOGCAP) contract, estimated at over $900 million, to build base camps and provide logistical services like delivering mail and providing hot meals.
"The dollar values are huge," said Rep. Henry Waxman, a California Democrat who has reviewed the breakdown of the LOGCAP contract. But while the KBR unit is expected to win millions of dollars more in additional contracts, the stock has not outperformed the broader market. The shares, which surged in May after President Bush declared an end to major combat operations in Iraq and said reconstruction of the nation was under way, are down nearly 4 percent since mid-June. The S&P 500 index is up slightly over the same period.
"While the dollar amount of the contracts is large, historically the profits off of them have been very small," said Jim Carroll, portfolio manager of the Loomis Sayles Value Fund which owns shares of Halliburton. "I don't know what the situation is in this particular contract, but I think investors have a fair amount of skepticism about hundreds of millions of dollars in profits."
At the same time, Halliburton's asbestos liabilities have weighed down the stock.
The second-largest oilfield services company, behind Schlumberger Ltd.
The latest postponement came as the U.S. Congress debates a plan that would limit the impact of asbestos litigation on companies and would reduce Halliburton's asbestos costs by an estimated $3.5 billion. Wicklund said uncertainty is the top issue for the stock. "You don't know how much it's going to cost them, how much insurance is going to pay them back, when they're going to get it done," he said. "And until they get it done, there's the question if they'll get it done."