Global Policy Forum

By Vikram Dodd

Two official watchdogs are to review every contract awarded by the US government agency for international development, USAid, for reconstruction work in Iraq, the Guardian has learned. The awards have been criticised because foreign firms are not allowed to bid, leading to allegations of a US carve-up. The general accounting office (GAO) is due to examine how the eight contracts came to be handed out. USAid's office of the inspector general (OIG) has begun its own investigation and has already interviewed the officials involved.

The award of the biggest contract, potentially worth $680m (£415m), to the Bechtel conglomerate is the most controversial. Bechtel has close ties to the Bush administration, making big donations to the Republican party and its candidates. The Guardian understands that the OIG will examine whether USAid took account of Bechtel's alleged past failings in the developing world and in the US, and if so, whether it took sufficient account. Its investigators will examine whether the proper procedures were followed and rules observed. Criticism by Democrats has prompted the investigations. Bill Allison of the Centre for Public Integrity in Washington said: "It is an indication that internally they do feel a good deal of heat." He said the scrutiny by the watchdogs showed "the extent of the criticism".

Under President Bush the vice-president of Bechtel, Jack Sheehan, has a place on the Pentagon's defence policy board, and its chairman, Riley Bechtel, was appointed to the president's export council. Its contract for Iraq covers work on power stations, electricity grids and water and sewerage systems. The company has been trying to play down the significance of the recent revelation that it tried to build a $1bn oil pipeline from Iraq to the Red sea port of Aqaba in Jordan in 1983, at a time when Saddam Hussein was regularly using chemical weapons. It was able to get the current defence secretary, Donald Rumsfeld, to raise the matter with Saddam Hussein and his foreign minister, Tariq Aziz. Mr Rumsfeld was then President Reagan's special envoy to the Middle East. Such was the conglomerate's intertwined relationship with government that President Reagan's secretary of state, George Shultz, was a former chief executive of Bechtel, and the defence secretary, Casper Weinberger, had been its leading lawyer. Mr Shultz now sits on its board. A Bechtel spokesman said: "There is no connection between the Aqaba proposal and the recent Iraq reconstruction project."

Critics say that Bechtel is a poor choice for the crucial job of reviving the war-ravaged country because it has botched past projects in the developing world. In Bolivia it was part of a consortium which took control of the water supply and increased prices by 35%. Many in the city of Cochabamba could not afford to pay, and street protests led to several deaths. Bechtel pulled out, but is seeking $25m from the Bolivian government. Antonia Juhasz, of the International Forum on Globalisation, said: "The situation in Bolivia shows how far this company will go to ensure its profits are protected and [that it] has no concern about the human impact of its work.

"At best they sat idly by and allowed the Bolivian government to defend their right to profit using deadly force. They didn't say a word. The fear is they will lobby for the Iraqi water system to be privatised." Bechtel said it had not tried to exploit the poor in Bolivia, and the consortium it belonged to had "sought to expand the availability and improve the quality of affordable drinking water in Cochabamba". The company has a record of building prestige structures, such as the Channel tunnel, the Jubilee tube line extension in London and the Hoover dam in the US. But in Boston it was accused of a string of errors which led to a huge cost overrun for a road project which it managed and for which it did some of the design work and also some of the construction. The cost is said to have risen from the estimated $2.6bn to $14.6bn, and Bechtel faces possible legal action. A contract to revamp the water system in San Francisco, its own backyard, was ended after it was alleged to have padded its bill and charged for unnecessary work. It denied the allegations.

Juliette Beck of the public interest watchdog Public Citizen said: "Bechtel is not a company that has a sound social or environmental track record. It should not be involved in the humanitarian reconstruction effort in Iraq." But a spokesman for the corporation said: "Bechtel's unmatched record of managing large, complex projects makes us ideally suited to helping the people of Iraq rebuild their shattered infrastructure." The OIG report is expected next month; the GAO is due to report later.

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