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WASHINGTON - The U.S. Army is studying a possible compromise with Halliburton Co. that might allow the company to keep several billion dollars in disputed billings for work in Iraq, defense officials said on Friday.

"There's been no decision. But I understand progress is being made on a possible solution," said one of the officials, who asked not to be identified, when asked about a potential compromise first reported by the Wall Street Journal.

One Army official said the service had established two analysis teams "to determine fair and equitable costs" for work done by Halliburton. The teams are headed by Defense Department officials, but include representatives of an independent contractor, Resources Consulting Inc.

The Army official told Reuters that Halliburton's Kellogg Brown & Root division had to date been paid at least $5.2 billion, but another "obligated" $3 billion had not yet been paid and part was in dispute.

The Journal, however, reported that KBR had to date billed the government for up to $12 billion for work in Iraq, and that more than $2.6 billion of that was being challenged.

Halliburton's work in Iraq, ranging from feeding troops to transporting fuel, has been probed for months amid charges that it overbilled Washington.

Formerly headed by Vice President Dick Cheney, Halliburton has become a target of Democratic presidential candidate Sen. John Kerry who has said the administration turned a blind eye to overcharging and waste by "their friends at Halliburton."

The Bush administration denies any favoritism.

Halliburton Response
Halliburton spokeswoman Wendy Hall disputed charges the company had not provided good supporting documentation for $2 billion of its work in Iraq.

"We have extraordinary documentation for the tasks our employees and subcontractors have performed on behalf of the troops," Hall said in an e-mail.

The Journal said it had reviewed documents in which the Army acknowledged that the Houston-based firm might never be able to account properly for some work which Pentagon auditors charge is questionable or unsupported by proper documentation.
The newspaper cited Pentagon records showing that $650 million in Halliburton billings were deemed questionable. An additional $2 billion was considered to have insufficient paperwork to justify the billing, it said.

Hall said that because of the harsh working environment in Iraq, many of the supporting documents for work done were not "traditional" procurement typed files, but handwritten notes, e-mail correspondence and voice mails.

U.S. officials told Reuters that the potential compromise could result in dropping some claims by government auditors against the company.

But allowing Halliburton to keep billions in now-disputed costs would be very controversial, one official said.

"Why isn't the Army holding Halliburton to its original agreement," said the official. "There are people who want proof that this was an honest mix-up and not cheating," he said.

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