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U.S. Blames Own Contracting Rules for Iraq Reconstruction Failures

by Chris Shumway

Admissions of mismanagement continue to emerge even from Washington’s own assessments of the immediate post-invasion period, blaming the two largest contractors along with the former occupation authority.

Apr. 15, 2005 – In addition to citing a Halliburton subsidiary for failing "to adequately control and report costs" in its Iraq oilfield reconstruction work, the office charged with managing the reconstruction of post-invasion Iraq acknowledged last week that contracting rules and procedures established by the former Coalition Provisional Authority have contributed to the sluggishness of reconstruction efforts.

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Kellogg Brown & Root is the largest US military contractor in Iraq, and the State Department’s Iraq Reconstruction Management Office (IRMO) said KBR has performed so poorly in its work repairing the country’s southern oil pipelines that US officials at one point threatened to terminate the company’s arrangement and have begun working with another contracting firm to finish uncompleted work, a recent State Department report to Congress reveals.

The report also noted that Iraq’s civilian infrastructure was far more damaged from more than a decade of harsh economic sanctions - supported enthusiastically by the US and UK governments -- than had previously been understood.

Soon after US-led forces toppled Saddam Hussein, Coalition administrators in Iraq began awarding the vast number of contracts for reconstruction projects to large Western, mostly US-based corporations, granting contracts of only $50,000 or less to private sector Iraqi firms. An analysis by Iraq Revenue Watch, a watchdog group funded by billionaire George Soros, found that American and British companies received 85 percent of the value of all contracts paid for with funds derived from Iraqi sources and reallocated by the Coalition, while Iraqi firms received just 2 percent.

KBR and other firms favored by the Coalition have also benefited from so-called "cost-plus" contracts, which promise to pay the contractor for all expenses plus an additional percentage for profits. As a result, the US has been forced to pay many contractors even when they are behind schedule or not working.

Due to KBR’s "poor performance" in managing costs and completing work on time, the State Department has begun working with rival company Parsons to finish work in the South. Parsons already has a contract to repair Iraq’s northern oilfields,. But Major Mike Waggle, an Air Force contract officer who monitored KBR’s work, told the LA Times he did not expect the State Department to follow through on its threat to terminate the company’s contract.

As part of an economic privatization strategy, the Coalition Provisional Authority also refused to award contracts to state-owned companies in Iraq, which in many cases were most qualified to do local reconstruction work, according to a report released last summer by the Education for Peace in Iraq Center (EPIC), a US-based human rights group.

Thus, Iraqi businesses and technicians - including many who helped rebuild the country’s electrical system in less than a year after the 1991 Gulf War, only to see it deteriorate under sanctions before Coalition air strikes finished the job during the 2003 invasion -- were effectively barred from participating substantively in the reconstruction of their own country’s infrastructure. This has, in turn, exacerbated unemployment and fueled resentment among many Iraqis against US officials and Western contractors.

Last November, as the US was leading a massive assault on Fallujah, terrorists threatened officials of Bechtel Corporation with violence and extortion. Bechtel is a major US contractor tasked with a massive amount of reconstruction work that has notoriously lagged behind schedule. As a result, the company withdrew its workforce from two sewage projects for six weeks, the LA Times reported.

As a partial remedy to cost overruns and ongoing security problems, the State Department report recommends finally shifting work to Iraqi sub-contractors, acknowledging that they are "less susceptible to insurgency attacks," and that they are "not burdened by the same heavy overhead expenses of foreign firms."

The State Department reports that the new stance is part of an effort to reallocate $832 million in funds from long-term construction to smaller, more immediate projects focused on the operation and maintenance of public works facilities and job creation for Iraqis.

Long before the State Department acknowledged the failure of US contracting procedures, EPIC suggested that hiring expensive US firms to do jobs that locals were prepared for was not only dangerous but economically inefficient. "Qualified Iraqi water-system engineers familiar with their own infrastructure sit idle," EPIC observed, "while Bechtel engineers struggle to repair the water systems."

"The plan for reconstruction was never a plan," observed Steven L. Schooner, director of the Government Procurement Law Program at George Washington University. "It was unrealistic expectations and haste rather than rational decisions," he told the LA Times.

As an example of poor planning, the Times notes that some new water treatment plants have been built without water distribution lines, blocking millions of gallons of clean water from reaching Iraqi homes where it is badly needed.

Other water treatment facilities have gone quickly into disrepair after being rebuilt with equipment unfamiliar to Iraqi workers. Mahmoud Ali Ahmed, the official who manages Iraq’s water distribution system, told the LA Times, the US hasn’t provided enough funds for "maintenance and rehabilitation of existing projects."

Iraq’s Ministry of Public Works estimates that it could cost $10 billion to provide an adequate supply of clean water to most Iraqis. The US budget for water projects was cut from $4.3 billion to less than $2.3 billion last year so that more money could be spent on security operations.

Other Iraqi officials say it’s not just the money but the way US officials and contractors make decisions that has plagued the reconstruction process. Baghdad Mayor Alaa Tamini says that from the start the US should have worked more closely with Iraqis, allowing local officials and government agencies more control over the design and funding of projects. Americans "made a lot of decisions themselves," Tamini, himself an engineer, told the LA Times, "and the decisions were wrong."

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The NewStandard ceased publishing on April 27, 2007.

Chris Shumway is a contributing journalist.

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