U.S. Firms' Iraq Contracts Come Under Fire

The plan to rebuild Iraq is already under way, with millions of dollars in contracts awarded to U.S. companies that will help reconstruct everything from the war-torn nation's sewage systems to schools.

But as the potentially lucrative contracts are handed out, the process is coming under fire from critics assailing the lack of transparency of the selection procedure and some of the companies' political ties to the U.S. government.

One of the largest contracts given out last week is also one of the ones drawing critics. Bechtel, a San Francisco-based engineering and construction firm, was awarded an initial $34.6 million capital construction contract that could grow to up to $680 million over the next 18 months.

The contract is one of the biggest to be handed out so far. The bidding was conducted in secret, which has outraged critics.

The United States Agency for International Development, or USAID — the agency responsible for providing economic, development and humanitarian assistance to support U.S. foreign policy goals around the world — invited a limited number of companies to bid for the job, including Pasadena, Calif.-based Parsons Corp., Fluor Corp., Louis Berger Group Inc. and Washington Group International Inc.

Secret bids like this are legal, but controversial. USAID says it limited competition in compliance with Federal Acquisition Regulations, which are the rules that govern federal agencies' purchasing of goods and services, because they needed to choose a contractor quickly and did not want to do anything that might have complicated diplomatic efforts to prevent war.

But critics say the secrecy surrounding the bidding just raises questions among the public.

"The fact that the process was conducted largely in secret and involved only a handful of companies, some of which gave substantial campaign contributions, raised the questions about whether this process was open and fair," says Steven Weiss, communications director with the Center for Responsive Politics, a Washington-based research group that tracks money in politics.

Did Political Connections Yield Contracts?

The six groups that were initially considered for the contract (Halliburton subsidiary Kellogg, Brown & Root had also been in the running but took itself out) made a combined $3.6 million in individual, political action committees and soft money donations from 1999 to 2001, with 66 percent of that going to the Republican Party.

Bechtel contributed the largest amount of money with some $1.3 million in donations, 41 percent of which went to Democrats and 59 percent to Republicans, according to the center.

Some of Bechtel's executives also have Bush administration and Republican Party ties. A senior vice president, Jack Sheehan, sits on the Defense Policy Board formed to advise Defense Secretary Donald Rumsfeld. Bechtel's chairman, Riley Bechtel, is a member of the President's Export Council, which advises the White House on international trade matters.

Some who watch the government contract industry say they doubt political connections contributed to Bechtel's winning, noting that the company has more than 100 years of experience that includes helping to build the Hoover Dam and the Channel Tunnel Rail Link joining England and France. But they concede that the clandestine nature of the bidding process leads to questions in the public's minds.

"I think the whole political ties thing doesn't pan out," says Steve Schooner, a law professor and co-director of the government contracting program at George Washington University. "Anytime you operate in secret you set off the critics. You beg people to ask, 'What is the government hiding?' "

For their part, Bechtel officials say they're confident they were chosen on their merits, not their political contributions.

"We participated in an open and a competitive and an objective bid process that USAID asked us and all the other bidders to submit our qualifications," says Bechtel public affairs manager Howard Menaker. "We believe that this was a decision based on experience, on past performance and on qualifications."

Oil Fire Contract Spurs Controversy

Another controversial contract belongs to Halliburton's Kellogg, Brown & Root subsidiary, which was granted a contract put out oil fires in Iraq by the U.S. Army Corps of Engineers (USACE), without any competitive bidding. Vice President Dick Cheney is the former chief executive of Houston-based Halliburton.

With a total estimated cost of up to $7 billion, the two-year contract has prompted members of Congress such as Rep. Henry Waxman of California, the top Democrat on the House Government Reform committee, to call for more transparency in how the government awards such jobs.

The USACE said the contract was an extension of an existing contract that KBR had won via a competitive bid in 2001, and to invite other competitors that needed time-consuming security clearance would have been "a wasteful duplication of effort."

Further, KBR will only be involved in the initial phase of the contract taking place during the hostilities with subsequent oil field repair work open to competitive bidding, says USACE spokesman Lt. Col. Gene Pawlik. Having KBR start the initial phase of the work with the second phase open to competitive bids was always the plan, says Pawlik, and the final cost and duration of the contract would not hit anywhere near the $7 billion, two-year limit, one that was based on a maximum destruction scenario.

Still, Waxman wants the Corps to justify such as a high figure for a contract that was intended to be short-term in nature.

"It may be the case that the administration had valid reasons for granting a sole-source contract for emergency work during armed hostilities," Waxman wrote in a response to the USACE. "It is harder to understand, however, what the rationale would be for a sole-source contract that has a multi-year duration and a multibillion-dollar price tag."

A Halliburton spokeswoman says the company's contract was based on its experience in the field and had nothing to do with Cheney's past ties to the company.

Critics Lament Lack of Foreign Participation

Some smaller contracts have been awarded to companies that aren't big players politically. Washington, D.C.-based Creative Associates International was granted a $2 million one-year contract to address the educational needs of Iraq's primary and secondary schools. The company gave $2,000 in political donations to the Democratic party between 1999 and 2002, according to the Center for Responsive Politics. Likewise, Research Triangle Institute, a research firm located near Durham, N.C., which won a $7.9 million contract to promote Iraqi civil participation in the reconstruction process, gave $3,691 to Democrats during the same time period.

"They're all pretty much pocket change compared to the one Bechtel has," says Schooner.

Other critics worry that the lack of international competition in the primary contracts could bring trade repercussions in the future. Though foreign firms can be invited as subcontractors for work in Iraq, the contracts thus far have been limited to U.S. firms. USAID spokesman Harry Edwards says the primary contractors are limited to U.S. companies by law, but subcontracting firms can be from any nation except Libya, Iran, North Korea and Cuba.

But even with more bidding going out in the future, the U.S. companies that are already slated to start work in Iraq will be well-poised to reap the rewards.

"Often with these contracts there's been a first-mover advantage," says Peter Singer, Olin Fellow in foreign policy studies at the Brookings Institution, an independent research firm in Washington and author of Corporate Warriors, a book about the military contracting industry coming out in May.

"This does put you in a very good position to gain once you have it — you know the contract in and out, you know what the client wants, you have your people on the ground," he says. "It becomes very hard for a competitor to knock you off."