Talking Points about Iraq Reconstruction Contracts and the Occupation:

March 31, 2003

The Lack of Effective Oversight

Q. Who's in charge of the reconstruction? Who decides what companies get the contracts?

A. U.S. AID was originally in charge of the reconstruction contracts, along with the Army Corps of Engineers. The CPA's Program Management Office now controls most of the process.

However, the contracts are structured in a way to give the prime contractors (Bechtel and Halliburton) control over who gets the many subcontracts. Other companies interested in post-war work in Iraq have complained on numerous occasions that the government "shut out" qualified bidders and has turned too much of the subcontracting process to the private sector. (Nathan Hodge, "Companies 'Shut Out' Of Iraq Contracts: Critics" Defense Week, June 16, 2003.)

Q. Who is protecting the interests of U.S. taxpayers?

A. Contracting officers are handicapped by not having personnel on the ground to oversee and inspect the thousands of projects that are being ordered. The Pentagon's contract management office, which oversees much of the reconstruction, has just 14 people overseeing thousands of projects.

The Coalition Provisional Authority's (CPA) Inspector General is required to monitor the costs of reconstruction and report to Congress on a regular basis. The reports pass through OMB and are posted on this White House Web site.

Some contracts are also monitored by the Inspectors General of DOD and USAID's Inspector General, as well as the Defense Contract Audit Agency. For instance, see this report by the DOD IG .

The Government Accounting Office (GAO) has also been asked by members of Congress to investigate certain specific contracts.

In reality, there are not enough auditors to supervise the reconstruction. The Pentagon's inspector general found in a report released in March that there was "little or no government surveillance" on 23 of 24 rebuilding contracts awarded at the outset of the war and that contract officers failed to support price estimates on nearly all those assignments. It noted that a single Halliburton contract extension worth $587 million was renewed in 10 minutes - with just six pages of documentation. (Joshua Chaffin, "Focus on Halliburton obscures deeper problems," Financial Times, March 30, 2004).

In addition, the transparency of the contracting process is harmed by the inability of members of the public, the press, public interest groups and even members of Congress to see individual task or delivery orders associated with the contracts. This lack of transparency blocks any scrutiny of the details of what the money is being used for, and allows contractors to bill up to the spending ceiling of the contracts.

Q. What is the problem with "cost-plus" contracts?

A. Cost-plus contracts reimburse the company for its actual costs and then add an additional fee that may grow as the contractor's costs grow. This form of compensation creates few incentives to rein in spending. Instead, it has been described as an incentive for waste, abuse and possible fraud. Halliburton whistleblowers have described a regular and routine pattern of overcharging, wasteful spending, avoiding competition among vendors, and the use of preferred firms that were unreliable or regularly charged "outrageous" prices. Each former employee said that it was common for high- and mid-level Halliburton officials to tell subordinates: "Don't worry about price. It's cost-plus." (See Rep. Henry Waxman, letter to William H. Reed, Defense Contracting Agency, February 12, 2004)

A. The crony contracting process began long before the war began, when the contracts were structured in a manner to deliberately rule out competition.

Halliburton/Kellogg Brown & Root's advantage stems from an exclusive ten-year global logistics (LOGCAP) contract for the army that it was awarded in 2001. Although officials from the Army Corps of Engineers explained that "No other contractor could satisfy mission requirements in the time available," CBS reported that other qualified companies had attempted to bid on the contracts, but were shut out of the process.

As Representatives Waxman and Dingell put it in a letter to Admiral Nash (12/18/03), director of the Iraq Program Management Office, "Rather than creating opportunities for true price competition, the Administration intends to award individual contractors monopolies over different sectors of the economy. Moreover, the Administration intends to award these monopolies without full and open competition, effectively limiting the opportunity to submit bids to a few hand-picked companies for each contract." In essence, the prime contractors (Halliburton and Bechtel) have become the contract managers. Had the contracts been broken up, rather than being super-sized, more bidding might have taken place and more savings realized.

Suggested Experts:
Henry Waxman (House Government Reform Committee - Minority Office)
Keith Ashdown, Taxpayers for Common Sense (202) 546-8500, x110; keith@taxpayer.net
Scott Amey, Project on Government Oversight scott@pogo.org; (202) 347-1122
Rania Masri and Chris Kromm, Institute for Southern Studies rania@nc.rr.com; (919) 419-8315
Prataap Chatterjee, Corpwatch/War Profiteers, pchatterjee@igc.org
Medea Benjamin, Occupation Watch
Charlie Cray, Center for Corporate Policy, (202) 387-8030, ccray@corporatepolicy.org
Mike Surrusco, Common Cause, 202/833-1200, MSurrusco@CommonCause.org
Prof. Steve Schooner, George Washington U. Law School, (202) 994-3037, sschooner@law.gwu.edu
Center for Public Integrity
Iraq Revenue Watch

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