HALLIBURTON, the US engineering and energy services group, is cutting British jobs and employee benefits in what may be preparation for selling the group’s UK operation.

Workers at Kellogg Brown & Root, the US giant’s British subsidiary, were told days before Christmas that their contracts were being reviewed and that they had to agree to the new terms or face dismissal without any compensation.

In a letter to its 3,000 British workers, KBR said that it urgently needed to address its financial performance after the business had lost about $1 billion (£500 million) in operating income in the past two years.

KBR also admitted that it had lost “several major bids” in the Europe/Africa region worth more than $1 billion in the past two years and that “competitors are significantly outperforming KBR”.

The new contracts oblige employees to work longer hours for no extra pay and include the closure of the final-salary pension scheme for future service as well as scaling back holiday benefits, company car allowances, sick pay and a range of other benefits.

British workers fear that they are having to pay the price for a string of financial and political problems at the group’s parent company, including a massive asbestos claim and accusations that the company was unfairly awarded contracts in Iraq. Employees in Britain, where KBR is also active in the North Sea oil industry and is in the running for multibillion-pound Private Finance Initiative Ministry of Defence contracts, suspect that the proposed cuts are a precursor to a possible sale of the engineering group, which has been operating in the UK since the 1960s.

A spokesman for KBR said that the British workforce was not being singled out. “These changes to contracts are needed to make the company more competitive,” the spokesman said. “Our businesses in the US and Asia are going through a similar process.”

KBR is at present preferred bidder, along with Mowlem, to win a £4 billion contract with the Ministry of Defence to upgrade Army barracks at Aldershot and around Salisbury Plain. The company is also waiting to hear whether it has won a £4 billion contract to help to co-ordinate construction of two new aircraft carriers for the MoD.

KBR is understood to be looking to lay off 147 workers at its UK headquarters in Leatherhead, Surrey, with other redundancies coming at its operations in Asia and, in particular, the US. The company declined to put an overall figure on the cuts.

The proposals are part of a plan to cut $80 million to $100 million from KBR’s annual operating expenses.

In Iraq, KBR is helping to rebuild the country’s oil industry. Other responsibilities include providing air traffic control support, making water available and providing firefighter and crash-rescue services as part of a general logistics contract with the US military.

In September Halliburton slimmed down its KBR operation, reducing the group’s five divisions to two units, covering energy and chemicals and government and infrastructure work.

Halliburton plans to review its business portfolio when a long-running asbestos claim, relating to a company it bought in 1998, is settled. Some analysts expect it to try to dispose of KBR during 2006.

The construction and infrastructure business is expected to contribute $12.36 billion of Halliburton’s estimated $19.94 billion in revenues this year, according to analysts’ estimates, with the share declining in 2006 as Iraq contracts expire.

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