- The Washington Times - Thursday, January 5, 2006

Is Halliburton a war profiteer? Some antiwar activists scoff even at the question. They have little doubt that Halliburton made massive profits on the Iraq War and that its former chief executive, Vice President Dick Cheney, greased the skids.

At first glance, it would seem that a firm cannot be a war profiteer if it had next to no profits. Halliburton earned $85 million from $3.6 billion in Iraqi contracts, a profit margin of roughly 2.4 percent, in 2003. In the second quarter of 2004, Halliburton reported that it earned 1.4 percent profits on $1.7 billion worth of work in Iraq. These are pitifully small rates of return.

Would you stick with a mutual fund that invested for less than a 2 percent return? Neither would Halliburton.

As a result of poor performance, Halliburton wants to sell the division that runs Iraqi operations, Kellogg, Brown & Root (KBR).

Consider Halliburton’s stock price. When current CEO David J. Lesar took over from Dick Cheney in August 2000, the company’s shares were trading at $54. They sank to a record low of $8.70 in 2001. As of August 9, 2005, they trade at $58. If Halliburton had been raking in record profits in the war years (from 2003 to the present), its stock price would have climbed, not flatlined.

But these small, essential facts have not stopped critics from fulminating about secret deals, no-bid contracts, and yes, fat profits extracted from taxpayers.

In 1998, while Dick Cheney was Halliburton’s CEO, Halliburton acquired Dresser Industries, its former rival in the oil-services business. A Dresser subsidiary, Harbison-Walker Refractories (which Dresser had sold in 1992), had made insulating bricks and coatings with asbestos decades before asbestos was banned. But the courts found Halliburton liable anyway. Halliburton finally settled its asbestos cases in December 2004, at a cost of $5.1 billion.

The bottom line? Because of that payout, Halliburton has earned virtually no net profits for the last five years.

Is it possible that the Iraq operations made mountains of money, but simply not enough to compensate for the Everest of litigation costs? Independent journalists who have extensively investigated Halliburton’s operations reluctantly conclude that Iraq has not been a geyser of money for the troubled industrial giant.

In early 2001, before September 11, Halliburton won the Defense Department’s “super contract,” which covers food, maintenance, construction, and other services worldwide. In hopes of getting more government business, Halliburton “bid a price that was shockingly low. In addition to being reimbursed for what it spent, Halliburton would get a base fee of 1 percent and a maximum performance award of just 2 percent,” noted Fortune’s Peter Elkind.

After September 11, that already awarded “super contract” meant that Halliburton received an avalanche of unexpected business — at very low profit margins. Elkind found one anonymous source on the contract who said, “LOGCAP [the ‘super contract’] could be the first cost-plus contract in history that’s lost money.”

How is this possible? “Cost plus” does not cover every cost. Certain unforeseen costs (such as additional security) are not covered. When those unreimbursable costs exceed 3 percent — the maximum profit plus bonuses Halliburton can legally extract — the cost-plus contract becomes a money loser.

Halliburton gets about two-thirds of its business in Iraq (which is about $12 billion) from LOGCAP and the remaining one-third from a contract called Restoring Iraqi Oil (RIO). The RIO contract was controversial because it was a sole-source contract awarded secretly before the war’s onset.

Why the secret no-bid contract? Because, as Halliburton CEO David Lesar pointed out, Halliburton was the only contractor the Defense Department “had determined was in a position to provide the services within the required time frame given classified prewar planning requirements.” This was confirmed by Congress’s General Accounting Office.

In other words, no one else could do the job, so competitive bidding would not have accomplished much and prewar planning had to be kept secret in order to maintain the tactical advantage of surprise.

Dan Briody, the author of “The Halliburton Agenda: The Politics of Oil and Money,” the ur-text of the anti-Halliburton crowd, dismisses the “Cheney helped Halliburton win untold riches at taxpayer expense in Iraq” meme. “There was no question they were doing a quality job. Every military officer, past or present, I spoke with was more than satisfied with [Halliburton subsidiary] Kellogg, Brown & Root’s performance,” he said.

Mr. Briody’s main claim against Halliburton is that it won a defense contract in 1992 that it should not have. This is a long way from war profiteering and, anyway, the crime, if that is what it was, occurred in 1992 — eleven years before the Iraq War. It might be government graft, but it is not war profiteering.

Richard Miniter is the author of two New York Times bestselling books, “Losing bin Laden” and “Shadow War,” and is an internationally recognized expert on terrorism.

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