Army to End Halliburton Deal and Rebid Contract; Stock Falls

The U.S. Army said on Wednesday it would end a Halliburton Co. unit's multibillion-dollar contract to provide logistical support to soldiers in Iraq and other points around the globe, and will rebid the contract later this year.

Army officials said the subsidiary, KBR, will be allowed to take part in the new competition, but one option under consideration is to split the work among three companies.

"It will be rebid," said Dave Foster, an Army spokesman at the Pentagon.

Foster said the Army has not made a "formal decision" to split the work, adding that after the rebidding process KBR potentially could keep its current role.

"The need for the service continues," Foster said. "They (Army officials) are simply restructuring the way they're going about requesting people to fill that need."

Texas-based Halliburton (HAL), formerly run by Vice President Dick Cheney, has drawn scrutiny from auditors, congressional Democrats and the Justice Department for the quality and pricing of its work in Iraq that includes supplying water, dining and laundry services to the troops.

Halliburton is the world's second-largest oil services company and the U.S. military's biggest contractor in Iraq.

"It falls under lessons learned," Foster said when asked why the Army decided to rebid the contract. "We're constantly working the process — lessons learned, how can we do things better, what may offer a better, more effective way of doing that."

"There's discussion under way that there may be — may be — a better way of doing this if you open it up to as many as three bids for the contract," Foster said.

Foster did not specify the nature of the "lessons learned."

The Washington Post reported the decision to end Halliburton's logistics contract in its Wednesday edition. Last year, the Army paid the company more than $7 billion under the contract, the Post said.

Halliburton said the U.S. Army's move to end the contract to provide logistical services to U.S. troops did not come as a surprise.

"It is neither unusual nor unexpected that the LOGCAP contract may be replaced with another competitively bid approach as previous iterations of this contract vehicle have experienced," Halliburton spokeswoman Melissa Norcross said in a statement.

The company has defended its troop support work. In Iraq, Kuwait and Afghanistan, KBR said it has prepared nearly 375 million meals, washed more than 18.5 million bundles of laundry and transported supplies more than 100 million miles.

"By all accounts, KBR's logistical achievements in support of the troops in Iraq, Kuwait and Afghanistan have been nothing short of amazing," Norcross said.

Sen. Byron Dorgan, a North Dakota Democrat, called the move to rebid the contract "a step in the right direction." "Finally the taxpayers get a break," Dorgan said on the Senate floor.

Shares of Halliburton were down 1.5 percent at $74.41 on the New York Stock Exchange in Wednesday afternoon trading, amid a broad retreat in U.S. stocks. Over the last 12 months its shares have traded a low as $45.77, in July last year, and as high as $83.95 on April 20.

Halliburton declined to comment on whether the move would affect its planned initial public offering of KBR stock, expected to raise up to $550 million.

One company watcher said the company had been telling investors for months the government could end the contract.

"I wouldn't think this would have much impact on (KBR) one way or the other," Kurt Hallead, analyst with RBC Capital Markets said.