Oct. 27 (Bloomberg) -- Halliburton Co., the largest U.S. contractor in Iraq, has impeded efforts by the U.S. government to oversee its work and check its bills, according to a new audit.

The company ``routinely'' misused government regulations that allow a company to protect internal business data, restricting access to such information as its labor rates, indirect costs and in one case headcounts of the number of U.S. troops fed at mess halls the company manages, said Iraq Inspector General Stuart Bowen.

Halliburton's Kellogg Brown & Root unit won a $17 billion contract in 2001 to provide services to the U.S. Army worldwide that includes over $15.4 billion for Iraq work. While KBR has been criticized for its accounting practices, bills and estimates of future costs, this audit is the first to cite it for restricting information.

The company's restrictions on who can see its data are ``an abuse'' of federal regulations and the procurement system, Bowen wrote. ``KBR is not protecting its own data but in many instances inappropriately restricting the government's use of information'' used to manage the contracts, he wrote.

Bowen cited as an example KBR's restrictions on a report on the date and number of liters of fuel issued to generators maintained by foreign embassies in Iraq. The reports was labeled as information capable of causing ``foreseeable harm'' if released, Bowen wrote.

U.S. Regulations

U.S. federal acquisition regulations allow companies to mark as ``proprietary'' or ``business-sensitive'' a wide range of data that can't be released to competitors or the public under the Freedom of Information Act or Congress.

One provision of the regulations is intended to protect data prepared in connection with bid proposals and other information that can be used by competitors.

KBR ``repeatedly cited'' these provisions ``to justify the `proprietary data' markings,'' Bowen wrote.

``However, the data is not related to contract proposals,'' he wrote. ``Rather, it is data produced by KBR for the government related to its performance under a contract that has already been awarded.''

`Bogus Restrictions'

Steven Aftergood, a national security analyst for the Federation of American Scientists who runs its Project on Government Secrecy, said Bowen's audit ``highlights a widespread problem that is usually overlooked, namely the use of bogus secrecy restrictions.''

``Such secrecy inhibits oversight and facilitates corruption and waste of taxpayer dollars,'' Aftergood said in an interview. ``Penalties for disclosing proprietary information can be even more severe than those for disclosing classified information, so the `proprietary' stamp is taken very seriously,'' he said.

Bowen cited another case in which KBR labeled as ``not releasable to the public'' reports of daily mess hall headcounts that showed the number of breakfast, lunch and dinner meals served in Iraq and Kuwait. KBR said the data was ``highly confidential and proprietary.''

Bowen also accused KBR of attempting ``to impede'' his office's ability to analyze data by providing the data in an unusable electronic format.

Bowen said his concerns were also shared by the Defense Contract Management Agency and Army command that manages KBR's multibillion worldwide logistics contracts.

Halliburton's Response

Halliburton spokeswoman Cathy Mann in an e-mailed statement said ``as the report today states, it is clearly appropriate to mark data as proprietary that could potentially be used for competitive purposes.''

``KBR has included proprietary markings on the majority of its data and property in support of its government contracts for the U.S. Army for at least the last decade,'' Mann said.

``KBR looks forward to continuing to work with its client regarding the company's operations and performance, to include the use of proprietary data markings, on the contract.''

``The company has cooperated and will continue to cooperate with audit agencies and its client throughout these processes. Audits are a routine part of the government contracting process,'' she said.

To contact the reporter on this story: Tony Capaccio at at acapaccio@bloomberg.net

Last Updated: October 27, 2006 13:35 EDT