Global Policy Forum

By Oliver Burkeman

An engineering firm with close links to the Bush administration won the main contract for the reconstruction of Iraq's infrastructure last night, sealing a deal worth up to $680m (£432m) to rebuild the country's electrical, water and sewage systems.

Bechtel Group, a San Francisco company that built the Hoover dam and the undersea leg of the Channel Tunnel rail link, will receive $34.6m initially, with the rest of the money dependent on approval by Congress, making it the biggest beneficiary of a contract awarding process that has been beset by allegations of political favouritism and internationally criticised for excluding non-American firms. The Bechtel contract is the largest part of a $1.1bn initial reconstruction project.

The 18-month deal could end up giving Bechtel an overwhelmingly important role in virtually every area of Iraqi society. Provisions in the contract also pave the way for it to take a role in repairing airports, dredging and restoring the Umm Qasr port, rebuilding hospitals, schools, government ministries and irrigation systems, and restoring transport links, according to the US Agency for International Development (USAid), which made the award. The agency said Bechtel would send staff to the region immediately to assess the damage.

Only a handful of firms were invited to bid for the first set of eight USAid contracts and, like several of the others, Bechtel has faced allegations of conflicts of interest. Its senior vice-president, Jack Sheehan, is a member of the Defence Policy Board, a Pentagon advisory group whose members are approved by the secretary of defence, Donald Rumsfeld. George Shultz, the former secretary of state, is on Bechtel's board, and also chairs the advisory board of the pro-war Committee for the Liberation of Iraq. Its San Francisco offices have been the site of anti-war protests in recent weeks.

Democrats in Congress have criticised the invitation-only contract awarding process, and British and other European industry groups have condemned their inability to participate. But the US government argues that the restriction is for practical reasons, is comparable to EU policies, and that non-American firms will be able to be involved as subcontractors.

The contract had been delayed while the government sought to resolve the bidding companies' concerns over getting insurance for excessive risk involved in working in dangerous situations in Iraq. Eventually President George Bush announced an executive order, similar to one used for homeland security contracts after September 11, which allows the government to in demnify Bechtel. "Bechtel is honoured to have been asked by USaid to help bring humanitarian assistance, economic recovery, and infrastructure reconstruction to the Iraqi people. We will now begin meeting with USaid to start detailed planning on this important effort," said Tom Hash, president of Bechtel, which is also one of three partners in Tube Lines, a consortium running part of the London Underground. At the time of the 1991 Gulf war it won a contract to put out oil fires in Kuwait.

Dismissing claims that favouritism was involved in the firm's shortlisting, Bechtel spokesman Jonathan Miller said this week: "The USAid process seems to have been handled by career civil servants, and it's not reasonable to suggest that they are influenced by political pressure, nor that we have attempted to bring any political pressure to bear. We have a proud record in engineering and construction and have handled very large contracts, many in the Middle East, where we have been for 60 years. It's almost inconceivable that we wouldn't be on the list."

An earlier $7bn contract for fighting oil fires became the focus of controversy when it was awarded to Kellogg, Brown & Root, a division of Halliburton, once run by vice-president Dick Cheney.

The army, which awarded that contract, said it was agreed under a pre-existing deal with the company. USAid has already awarded contracts aimed at promoting Iraqi participation in local government and in education, in seaport administration and in personnel management.

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