WASHINGTON, Nov. 19 (HalliburtonWatch.org) -- A criminal investigation of Army practices that allegedly favored Halliburton over competitors during the pre-war contract award process has been referred to the Department of Justice (DOJ), the Washington Post reported today.

The Defense Criminal Investigative Service, the criminal investigative arm of the Pentagon inspector general, had been investigating allegations revealed in October 2004 by Army whistleblower, Bunnatine H. Greenhouse, the top civilian contracting official for the Army Corps of Engineers.

In a letter to Sen. Byron Dorgan (D-ND), John R. Crane, assistant inspector general, said, "The DOJ is in the process of considering whether to pursue the matter."

In responding to the referral, Dorgan said, "This is the first evidence that someone is taking seriously these allegations."

Greenhouse was demoted in August after testifying in June before the Senate Democratic Policy Committee about what she called a "clubby" relationship between Halliburton's KBR subsidiary and the Army Corps of Engineers.

"I can unequivocally state that the abuse related to contracts awarded to KBR represents the most blatant and improper contract abuse I have witnessed during the course of my professional career," Greenhouse told Congress.

In one of the many examples of alleged abuse, Greenhouse said military auditors caught KBR overcharging the Pentagon by $61 million for fuel deliveries into Iraq. (Those overcharges eventually totalled $212 million. In one case, the overcharges exceeded 47% of the total value of the work order.) But, says Greenhouse, the Army Corps "took the unusual step" of issuing an illegal waiver to excuse KBR from explaining why its oil transport prices were much higher than competitor prices. She said the Corps "simply asserted that the price charged for the fuel was 'fair and reasonable', thereby relieving KBR of the contract requirement that cost and pricing data be provided."

By issuing the waiver, said Greenhouse, the Corps "knowingly violated" the law by "intentionally failing" to obtain her approval. That's because they knew she would have refused to approve the waiver request. "The evidence suggests that the reasons why I was intentionally kept from seeing the waiver request were politically motivated," she said.

Amid the controversy -- on December 30, 2003 -- the Pentagon fired Halliburton from the gasoline importation contract and assigned it to an internal office known as the Defense Energy Support Center. The result was a 50 percent reduction in gasoline prices charged to US taxpayers.

The Corps also concealed from the public a number of audits by the Defense Contract Audit Agency which were critical of Hallburton's work in Iraq and Kuwait. For example, in releasing an audit to the United Nations, Army Corps officials -- at the request of KBR -- redacted the following sentences from public view: "KBR was unable to demonstrate the proposal was based on actual costs"; "We consider KBR's estimating system to be inadequate"; "KBR was unable to reconcile the proposed costs to its accounting records"; "KBR did not always provide accurate information"; "KBR has failed to demonstrate adequate competition in its procurement decision"; "KBR did not comply with the stated terms and conditions of its own subcontract clauses"; and "We found significant purchasing system deficiencies."

Greenhouse said the Army Corps repeatedly violated regulations designed to shield contract awards from unethical outside influences. At one point, KBR executives were present in a meeting of Army officials who were deliberating whether KBR should be awarded a contract. The executives left the meeting only after Ms. Greenhouse urged them to leave.

"[T]he line between government officials and KBR had become so blurred that a perception of conflict of interest existed," Greenhouse's attorney, Michael Kohn, said in a letter to the acting Secretary of the Army. "Employees of the U.S. government have taken improper action that favored KBR's interests," he said. "This conduct has violated specific regulations and calls into question the independence" of the contracting process.

Greenhouse also complained when Defense Secretary Donald Rumsfeld's office took control of "every aspect" of KBR's $7 billion no-bid Iraqi oil infrastructure contract. "In reality, the OSD [Office of Secretary of Defense] ultimately controlled the award of the [oil] contract to KBR," she said. This arrangement was illegal since the law requires career civil servants, not temporary political appointees like the folks in Rumsfeld's office, to determine the winners of government contracts. The purpose of the law is to prevent political appointees from awarding contracts only to their friends in the private sector. Rumsfeld's office violated this rule by involving itself in awarding the Iraqi oil contract to KBR.

"She is being demoted because of her strict adherence to procurement requirements and the Army's preference to sidestep them when it suits their needs," Greenhouse's attorney said. He also said the Army had violated a commitment to delay Ms. Greenhouse's dismissal until the completion of the investigation by the inspector general.

The Army Corps says Greenhouse, who has received excellent performance ratings during her 20-year career in contracting, was demoted for her performance and not in retaliation for any disclosures of alleged improprieties.

In a written statement to the Post, Halliburton said it "continues to cooperate fully with the Justice Department's investigation of certain issues pertaining to our work in Iraq." "As the investigation is ongoing, it would be inappropriate to comment further at this time."

To see a list of examples of the Pentagon's favoritism toward Halliburton, click here.