The Pentagon said on Wednesday it would withhold payment on 15 percent of meal bills from Texas firm Halliburton under a logistics contract in Iraq that is under military auditors' scrutiny.
A Pentagon spokeswoman said the withholding would amount to about $300 million this month not paid to Halliburton, the oil services company once run by Vice President Dick Cheney that is the U.S. military's biggest contractor in Iraq.
The withheld funds cover meals provided by Halliburton unit Kellogg Brown and Root to troops in Kuwait and Iraq. If $300 million were withheld, the total expected to be billed by Halliburton for meals would be about $2 billion.
Military auditors and Halliburton have been at loggerheads for months over pricing for meals and whether billing should be based on estimates or the actual number of soldiers at the dining table on any given day.
The company agreed earlier this year to withhold $176.5 million in billing for food while KBR prepared a response to issues reported by the Defense Contract Audit Agency.
"This shows that the system is working," said Pentagon comptroller Dov Zakheim of the decision to partially withhold payment while auditors examined pricing.
Military auditors are looking into whether KBR overcharged for some of its services in Iraq and Kuwait, where its contracts cover tasks from serving hot meals and doing laundry to delivering mail and building bases for U.S. troops.
A Pentagon spokeswoman said "a 15 percent withholding will be taken on all claims for reimbursement until such time as the final prices are negotiated."
She said the contracting officer involved with KBR had asked the company to present a rebuttal to the DCAA's recommendation, adding that the officer said the 15 percent would be withheld at the end of this month.
The 15 percent will amount to about $300 million, the spokeswoman said.
Last week, military auditors said Halliburton had shown "systemic deficiencies" in its cost estimates for billions of dollars of work in Iraq.
Halliburton and its unit KBR are the U.S. military's biggest contractor there, holding contracts that could eventually total nearly $18 billion, including one to help rebuild Iraq's oil industry.
Under its logistics contract with the U.S. military to support troops in Iraq and other conflict zones, auditors have been looking into the company's pricing for meals to troops.
Auditors are also examining whether KBR overcharged for fuel brought into Iraq via a subcontractor. Criminal investigators at the Pentagon are looking into this issue.
The company did not immediately reply to e-mailed questions over the Pentagon's decision.
Halliburton has defended its work in Iraq and says it is doing the best job possible under difficult circumstances.
