The United States Congress has approved a budget of almost 2.5 billion dollars for humanitarian aid and the initial phase of rebuilding Iraq. The projects will restore some of the most urgent services such as health, food and water supply, transportation, civic governance and children’s education. The United States Agency for International Development, or USAID, is in charge of contracting companies to do the job. Since January of this year, the agency has awarded six contracts.
“The first one is what’s called personnel support,” says Ellen Yount, Press Director at the USAID. “That is the contract that provides the technical expertise for reconstruction,” she says. “The second one is for the administration of the seaport. This is dealing with the port in Umm Quasar, where a lot of the humanitarian aid is going in. So it’s to make sure that facility is properly administered so that these humanitarian relief supplies can move into the southern part of Iraq. The third area is primary and secondary education – to do teacher training, to help rehabilitate schools, to make sure that children have the appropriate school supplies when the school year starts in the fall. The fourth contract is for local governance. This is for strengthening the management skills and capacities of local administrators and civic organizations.”
The remaining contracts cover reconstruction of roads, bridges, ports, hospitals and ministry buildings and a broad range of logistical services from customs clearance to transportation to warehousing.
The federal law requires that the primary contracts be awarded to US companies since the funding comes from American taxpayers. Under normal circumstances, USAID advertises the projects so that all interested companies can bid. The process that may take from six months to a year is designed both to promote fair competition and to save US taxpayers’ money.
In cases of emergency, when basic services must be restored to relieve the suffering of the local population, the law allows selectiion from companies that have an existing contract with the government or proven ability to perform the work. This procedure was used for Iraq contracts, says Ellen Yount. “It was a limited competition," she says. So we didn’t have a full and open competition in which you would open it up to a very full universe. But for the first eight contracts that went out for reconstruction work in Iraq, 21 companies bid on those first eight contracts. So it was a very healthy competition. There was a competition involved. It’s just that there were not hundreds of companies that bid as prime contractors.”
But critics say the process of awarding contracts has been too secretive and many companies that meet the criteria were not given a chance to bid. Furthermore, they find that some of the winning companies have close ties with the Bush administration. As the most conspicuous example, they cite the Bechtel Group that won the most lucrative contract for up to 680 million dollars over 18 months.
As widely reported in the press, during the 1970s, Bechtel was headed by George Shultz, US Secretary of State in the Reagan administration. In that office in 1983, he sent his Middle East envoy Donald Rumsfeld to Iraq to obtain President Saddam Hussein’s support for Bechtel's bid on construction of an oil pipeline from Iraq to the Jordanian port of Aqaba.
But this is not where the ties stop, says Bill Allison, Managing Editor for the Center for Public Integrity, a non-partisan government ethics watchdog group. “One of their vice-presidents, Jack Sheehan, is a former Marine Corps general, and he sits on the Pentagon’s defense policy board, which is the group of advisors that helped the Pentagon with big picture thinking and strategic ideas," says Mr. Allison. "So he is somebody who essentially advises the Department of Defense and Secretary Rumsfeld on various issues. And he also happens to work for Bechtel, which is a company that similarly was awarded large contracts in Iraq.”
Even before the first shots were fired in Iraq, the US Department of Defense awarded a contract to Kellog Brown & Root, another company with close ties to the Bush administration. Kellog Brown & Root is a subsidiary of Texas-based Halliburton, whose former chief executive officer Dick Cheney is now vice-president of the United States. The company was hired to extinguish oil well fires in Iraq.
Earlier this year, extensive media reports that Richard Perle, the Chairman of a Defense Department advisory group, had been one of the nine board members who had business relationships with defense contractors, caused his resignation from that post.
More recently, an internal report showed that the USAID deleted its requirement for a security clearance after realizing it awarded a project to a company that lacked one. It justified the change by deciding the situation in Iraq made the clearance unnecessary for seaport rebuilding work, but the regulations indicate that the requirement should have been changed before selecting a contractor — not afterward.
Observers say the secretive process of awarding the initial contracts combined with this kind of information about the winners cannot be ignored. Bill Allison of the Center for Public Integrity says “this raises questions of cronyism and insider-ism, where you have a government agency picking who the winners will be instead of having a fair competition among the full range of companies interested.” Mr. Allison adds ”if you look at the Iraqi contract to cap the oil wells that Halliburton won, there were other US firms that do that kind of work that were interested in bidding on that contract who were completely shut out of the process and were told not to bother to apply.”
Rebuilding of Iraq is the largest reconstruction project the United States has undertaken since World War Two. As well as helping Iraq, it opens up new job opportunities for Americans for some time to come. The large companies selected to do the job will be subcontracting other companies, domestic and international, to help them.
Diane Willkens, President of Development Finance International, a consulting firm specializing in fair and transparent procurement, says the USAID contracts in Iraq may not be as profitable as some people think, but business opportunities arising from the initial contracts could be. “If you’ve got the patient-monitoring system and the first ten hospitals and all the new nurses and doctors are going to be re-trained on these, you basically own that market,” she says. “The follow-on sales come with their own higher margin: services, add-ons, consumables and everything else that the company makes money on. When you put the whole opportunity together then, I think that’s why Iraq is driving people. It will be lucrative. Companies who do a good job will be referred elsewhere in the region and there’s going to be a lot of money spent there.”
Ms. Willkens says she approves of the emergency procedures when necessary, such as rebuilding after wars and natural disasters. “I think there’s a precedent to come in the initial phase to get people on the ground and to address an emergency need. But what we want to see, we as taxpayers, and what I want to see in the business that I am in, is that the normal procurement rules fall into place very quickly," she says.
Diane Willkens says the companies selected so far for the reconstruction of Iraq are undoubtedly among the best to do the job. But now that the emergency phase is over, the bidding process must open up to all interested parties.