The U.S. Army is laying
the groundwork to let Halliburton Co., keep several billion dollars paid
for work in Iraq that Pentagon auditors say is questionable or unsupported
by proper documentation, the Wall Street Journal reported today.

According to Pentagon documents reviewed by the Journal,
the Army has acknowledged that the Houston-based company might never be
able to account properly for some of its work, which has been probed amid
accusations that Halliburton's Kellogg Brown & Root unit overbilled
the government for some operations in Iraq.

The company has hired a consulting firm to estimate
what Halliburton's services should cost, the report said.

The newspaper, citing the documents and internal memorandums,
said that officials are considering using the estimate to serve as the basis
for "an equitable settlement," under which the Pentagon could
drop many of the claims its auditors have made against the company.

But the Journal added that some disgruntled Pentagon
officials see the effort to broker an outside settlement with the company
as unusual because the contract is so large.

According to the report, Kellogg Brown & Root
so far has billed about $12 billion in Iraq, and about $3 billion of that
remains disputed by government officials.

The Journal also cited Pentagon records showing that
$650 million in Halliburton billings are deemed questionable. An additional
$2 billion is considered to have insufficient paperwork to justify the billing,
the report said.

A representative for Halliburton did not immediately
return a call seeking comment early today.