WHITE HOUSE HOLDS BACK PAYMENT TO AD AGENCY

WASHINGTON, Sept. 29 - The White House is withholding millions of dollars
in payments to a major advertising firm after allegations that the firm may
have overbilled the government for its work on a huge media campaign aimed
at discouraging young people from using drugs.

The White House drug-policy office, which oversees the media campaign, has
held back some $13.5 million in payments on $187 million that has been
billed by the firm, Ogilvy & Mather, much of it after one of the company's
former employees and a White House project manager questioned the firm's
charges, officials said.

In an internal government memorandum, a consultant hired by the White House
to assess the charges also found that Ogilvy's costs, particularly for
labor, were "dramatically higher than even the high end of what is standard
industry practice."

Officials of the White House agency, the Office of National Drug Control
Policy, emphasized that there was no evidence that the company had engaged
in fraud. Ogilvy executives also strongly denied that they had done
anything improper, saying that only $10.5 million in payments had been held
up and describing the disputes as nothing more than the normal
give-and-take between a contractor and the government.

"It is routine for bills to be negotiated; that's a standard commercial
practice," said a spokesman for Ogilvy & Mather, Howard G. Paster. "We
clearly expect to be paid for our work. There may be things that have to be
adjusted, but we don't anticipate any significant reduction in billing."

In response to the allegations of improper billing, the United States
General Accounting Office, the investigative arm of Congress, began an
inquiry into the contract in July. The agency's Office of Special
Investigations has found no evidence of fraud, the director of the office,
Robert H. Hass, said, but the agency has now begun a full financial audit
of the contract.

Ogilvy is the primary government contractor in an ambitious new anti- drug
advertising and education effort called the National Youth Anti- Drug Media
Campaign.

The campaign, which got under way in 1998, is expected to cost nearly $1
billion over five years. It supplants the free advertising that was
organized for years by the Partnership for a Drug Free America, a coalition
of communications and advertising professionals.

That effort was seen to have lost much of its effectiveness as television
audiences grew more fragmented and it became harder to reach young viewers
through public-service announcements on major networks that were required
to carry the announcements. After a long debate, the Clinton administration
and Congress decided to spend public money to try to achieve a greater
impact with the advertising, while also trying to influence the depictions
of drug use in films, television shows and popular music.

The new campaign was criticized earlier this year, when it became known
that popular television shows were submitting their scripts to the White
House drug office in order to get credit for required public-service spots.

Under the terms of its contract, Ogilvy buys advertising time and space for
the campaign and also negotiates with television networks and others to
match the advertising they sell to the government with an equal amount of
donated time.

Ogilvy and government officials said the agency's costs had been higher
than expected in part because it had taken on tasks that were new or not
anticipated in its contract, like working with social scientists to prepare
television spots, or developing separate advertising campaigns for
different ethnic communities.

"We are certainly concerned about the costs - it is much more expensive
than we thought it would be," said Alan Levitt, the director of the media
campaign for the White House drug office. "But there are reasons for some
of it."

Mr. Levitt said that some of Ogilvy's large bills might have been the
product of the agency's relative unfamiliarity with government accounting
practices.

But privately, some other officials of the drug-policy office have raised
other, sharper concerns, as documented in a series of memoranda provided to
The New York Times by an official who believed that the Clinton
administration was not taking them seriously.

In an April memorandum the manager of the media campaign, Richard Pleffner,
wrote to the White House drug-policy chief, Gen. Barry R. McCaffrey,
retired, that Ogilvy's first bill for labor costs, submitted last
September, raised questions about "excessive salaries, numbers of stated
hours, unallowable compensation and erroneous computation methodology that
benefits Ogilvy."

Those concerns escalated, he wrote, with each of the other two bills that
the firm submitted for work it had done over the same time period.

Mr. Pleffner also wrote that a former Ogilvy employee who had been
dismissed as a senior manager of the contract had told White House
officials that a senior official of the agency had complained to managers
in 1999 that the agency was not earning enough from the contract, and that
thereafter "time sheets were altered to increase the number of hours
worked" on the account.

"While it may not be unusual for a terminated employee to bring forth
allegations against their former employer," Mr. Pleffner wrote in his
memorandum, "in this case they corroborate pre-existing concerns."

White House officials said they sought to arrange an audit of the contract
but were unable to persuade the Department of Health and Human Services -
the agency being paid to handle the contracting - to conduct one before the
contract was over. White House officials said the administration of the
contract would be transferred to an office of the Navy by the end of this
year, and an external audit will be conducted soon thereafter.