Army to Withhold Halliburton Payments

The U.S. Army will begin withholding 15 percent of its payments on Halliburton Co.'s (HAL) future invoices for logistical support of troops in Iraq (search) and Kuwait, the oil services conglomerate said Tuesday.

Halliburton (search) reversed its announcement Monday that the Army Materiel Command had given the company more time to explain and account for its costs before implementing a clause in a contract allowing withholding of payments. Halliburton said that on Monday the company understood that the extension, which expired Sunday, would remain in effect "based on clear oral assurances from senior Pentagon representatives."

Halliburton said Tuesday the company had learned that the Army Materiel Command (search) had refused to grant a third extension before implementing the clause, which allows the government to withhold 15 percent of payments until contractors prove their costs.

Halliburton has been awarded more than $6 billion in contracts related to the U.S.-led invasion of Iraq, but the company has been under fire for allegedly overcharging the government. Halliburton says it is a political target, denies wrongdoing and disputes whether the withhold is legally justified.

The Army Materiel Command "feels this is a standard part of the contract and this is not being imposed as a penalty or lack of progress" on substantiating costs, spokeswoman Wendy Hall said in an e-mail message.

The withhold affects Halliburton's LOGCAP III contract with the Army to provide logistical support for troops — meal service, laundry, mail and housing.

Halliburton said KBR, its engineering and construction arm that performs much of its government contract work, will offset the loss by withholding 15 percent from payments to subcontractors.

"At the end of the day, we do not expect this will have a significant or sustained impact on liquidity," Halliburton finance chief Cris Gaut said.

Halliburton similarly disputes withholding of 15 percent of payments on its contracts with the Army Corps of Engineers to fight oil well fires and rebuild Iraq's oil infrastructure.

The company said Tuesday it expects to ask for a "judicial determination" on whether the withholds apply to the contracts. Hall said it "hasn't been determined" where or with whom the claim will be filed.

"Halliburton is confident that the government action is not justified and expects that its legal arguments will be upheld in litigation," the company said.

Halliburton shares fell $1.02, or 3.7 percent, to $26.77 in midday trading on the New York Stock Exchange.