updated 8/17/2004 12:18:59 PM ET 2004-08-17T16:18:59

Halliburton Co. on Tuesday blamed politics for a U.S. Army decision to not grant the company more time to resolve a billing dispute in which the Pentagon contends the company did not adequately account for some $1.8 billion of work done in the Middle East.

The company said the government can now dock payment for up to 15 percent of the company's bills in Iraq and Kuwait. The work involves Halliburton subsidiary Kellogg Brown and Root, which had until Aug. 15 to resolve the dispute.

Halliburton said on Monday that it thought the withholding order would remain under suspension while talks continued. That announcement was "based on clear oral assurances from senior Pentagon representatives," Halliburton said on Tuesday. The company contends the government changed its mind due to a "politically charged environment and leaks to the news media."

The decision to withhold payment to Halliburton is not expected to financially damage the company _ at least not yet. Halliburton said it will withhold 15 percent from payments to subcontractors working with Kellogg Brown and Root. At the same time, Halliburton said it will pursue "judicial determination" on the matter.

"At the end of the day, we do not expect this will have a significant or sustained impact on liquidity," Halliburton chief financial officer Cris Gaut said in a statement. "There are very few companies in the world that could or would adapt this quickly while, at the same time, financing an operation of this magnitude."

He said Kellogg Brown and Root's working capital investment in Iraq continues to improve, as the balance has declined to less than $750 million from $1.1 billion as of June 30. The Army has already granted two previous extensions to Kellogg Brown and Root to resolve if it properly documents bills to feed and house troops in Iraq and Kuwait.

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