Global Policy Forum

Contract Excesses Also Hamper Progress

By Renae Merle and Griff Witte

Efforts to rebuild water, electricity and health networks in Iraq are being shortchanged by higher-than-expected costs to provide security and by generous financial awards to contractors, according to a series of reports by government investigators released yesterday. Taken together, the reports seem to run contrary to the Bush administration's upbeat assessment that reconstruction efforts are moving vigorously ahead and that the insurgency is dying down.

The United States, Iraq and international donors have committed more than $60 billion to run Iraq and revive its damaged infrastructure. But security costs are eating away a substantial share of that total, up to 36 percent on some projects, the Government Accountability Office reported yesterday. The higher security costs are causing reconstruction authorities to scale back efforts in some areas and abandon projects in others. For instance, in March, the U.S. Agency for International Development canceled two electric power generation programs to provide $15 million in additional security elsewhere. On another project to rehabilitate electric substations, the Army Corps of Engineers decided that securing 14 of the 23 facilities would be too expensive and limited the entire project to nine stations. And in February, USAID added $33 million to cover higher security costs on one project, which left it short of money to pay for construction oversight, quality assurance and administrative costs.

"If we didn't have a bunch of extremists running around trying to derail the progress of the Iraqi government and the Iraqi people and the coalition, the amount of money spent on security would be far less," said Lt. Col. Barry Venable, a Pentagon spokesman. "It is a fact of life, one which cannot be wished away."

Heather Layman, spokeswoman for USAID, said security accounts for an average of 22 percent of a project's cost in Iraq. "We are making some really important and good progress in this challenging environment," Layman said. "Security is part of the cost. But we're doing things like providing clean water and power and building schools."

The new reports were released to Congress yesterday. They were compiled by the GAO and the Office of the Special Inspector General for Iraq Reconstruction, which was created to monitor the rebuilding process. GAO investigators did find some bright spots: "The U.S. has completed projects in Iraq that have helped to restore basic services, such as rehabilitating oil wells and refineries, increasing electrical generation capacity, restoring water treatment plants, and reestablishing Iraqi basic health care services," the report's authors concluded.

In other areas, developments were less auspicious. Despite $5.7 billion committed to restoring electricity service in Iraq, power generation was still at lower levels as of May than it had been before the U.S. invasion in 2003. In one case, the GAO reported, the United States led an overhaul of an Iraqi power plant but then did not adequately train the Iraqis how to operate it. A widespread power outage resulted.

Crude oil production has also dropped in the past two years, even with more than $5 billion in U.S. and Iraqi funds available for rebuilding. Oil export revenue is needed to fund more than 90 percent of the nascent Iraqi government's 2005 budget, the State Department has said. "It's quite clear that we've got massive amounts of taxpayer money funneled into Iraq, with very little oversight and a substantial amount of waste and abuse," said Sen. Byron L. Dorgan (D-ND). "These are very discouraging reports." Dorgan said the high costs associated with providing security are particularly troubling.

The government does not know how much it spends on private security contractors in total, the GAO said. But it is more than expected. "Contractor officials acknowledge that the cost of private security services and security-related equipment, such as armored vehicles, has exceeded what they originally envisioned," the GAO said. The Pentagon estimates there are 60 private security firms with as many as 25,000 employees in Iraq. Some elite personnel make $33,000 a month. But there are no industry standards, and soldiers are not taught in advance how to interact with the armed contractors, according to the GAO. The use of contractors has led to occasional conflicts with the military. In May, the Marines detained 19 contractors for three days, claiming the contractors fired at them. The contractors, who worked for Zapata Engineering of Charlotte, denied firing at the Marines and said they were roughed up while in custody.

At one point, an Army unit barred private contractors from its dining facilities after the contractors refused to stop carrying their loaded weapons. Soldiers also continue to mistakenly fire on security contractors, despite recently established procedures. Between January and May, 20 such friendly-fire incidents were reported, though the actual figure is probably higher since some contractors have said they no longer report them, the GAO said.

The Department of Defense said it is developing a policy to improve coordination between military forces and contractors and a training strategy for deploying troops on contractor issues. "Training materials would benefit both operational military forces and" contractors, the DOD said in a response attached to the report.

In a separate report yesterday, the Office of the Special Inspector General for Iraq Reconstruction reported that more money than necessary may be going into the pockets of government contractors involved in the rebuilding process. A review by auditors of 18 reconstruction contracts found that the formula used for doling out special monetary awards, which are above and beyond basic fees, tended to skew them too high. For instance, the inspector general's office found that a contractor that received an evaluation of "average" performance won award fees of $1.67 million but could have been given just $309,436 under another widely accepted awards system. In a second case, a contractor won no award fees but ended up being paid $439,145 after it appealed because it had not received feedback on its work from the government.

U.S. officials responsible for contracting in Iraq said they were taking steps to improve the award fee process. Difficulties with contractors also contributed to the challenging reconstruction task in Afghanistan, according to a separate GAO report released yesterday. In 2004, USAID planned to build 286 schools by the end of the year, but because of contractor and security problems, it had finished only eight by September, the report said. The agency did not always require contractors to establish clear objectives or hold them accountable for meeting the targets, the report said.

The reconstruction projects in Iraq and Afghanistan together represent the largest U.S. assistance efforts since World War II. In Iraq alone, the GAO said, the United States has allocated $24 billion and has spent $9 billion since 2003.