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Jostling in the rebuilding
queue
By David Isenberg
An
important part of the second phase of the war in Iraq is
now moving into full gear; namely, the battle for
reconstruction and redevelopment contracts. And the
early stages of this battle could become a political hot
potato for the Bush administration, given that it
already appears to be enmeshed in charges of political
cronyism and insider connections; a sort of Enron in
Babylon, one might say.
As just about everyone
knows, the postwar reconstruction in Iraq is going to be
the largest and most ambitious effort since the Marshall
Plan in Europe after World War II. The United Nations
Development Program has estimated the reconstruction
cost at US$30 billion in the first three years. Others
have projected the figure as high as $100 billion.
The current contract controversy began before
the fighting started, when the US Agency for
International Development (USAID) sent a detailed
"request for proposals" to a handful of companies for
construction work that that could total up to $600
million over 21 months. The construction contract is one
of eight solicitations for work in postwar Iraq. USAID
contract documents detail some of the future work to be
done:
Repair up to 100 hospitals, 6,000 schools and 45
urban water systems.
Fix up to 10 electrical generating plants and 110
substations.
Get the railroad running again.
Reconstruct 100 bridges and 600 miles of irrigation
and drainage canals.
Agency officials said that
they were prohibited by law from identifying the invited
firms, but The Wall Street Journal said they included
Kellogg, Brown & Root, a Halliburton subsidiary;
Bechtel Group Inc; Parsons Corp; Louis Berger Group and
Fluor Corp, two companies that have joined together for
this effort, and Washington Group International.
The Center for Responsive Politics, an
organization that tracks political donations, said that
the companies and individuals associated with them had
have made $3.5 million in contributions from 1999 to
2000, with two-thirds going to Republicans.
The
Leuthold Group, a research firm in Minneapolis, put
together a list of companies it thinks will benefit from
contracts to rebuild Iraq.
In March, the leading
contenders were US companies like Bechtel, Fluor,
Halliburton and the Washington Group. Others could
include Schlumberger Ltd, Baker Hughes, Nabors
Industries, Globalsantafe Corp, Chicago Bridge &
Iron, Superior Energy, Core Laboratories, RPC, Perini
Corp and Boots & Coots International Well.
As expected, US firms are leading the pack. On
April 12, the New York Times reported that the US Army
Corps of Engineers confidentially awarded a one-year
contract worth up to $100 million on April 1 to the
Perini Corporation, which had revenues of barely $1
billion last year. The agency released a brief statement
about the award on April 4, but Perini did not receive
clearance to issue its own statement about the
significant chunk of business until April 8. By then,
its stock had climbed more than 40 percent.
Or
consider Kellogg Brown & Root, where Dick Cheney had
connections before he was selected by George W Bush as
his running mate. According to an April 8 letter by the
Corps of Engineers Director Lieutenant-General Robert
Flowers, who was responding to an inquiry by
Representative Henry Waxman (Democrat-California),
Kellogg was directed to develop contingency plans for
repairing and continuing operations of the Iraqi oil
infrastructure under its existing Logistics Civil
Augmentation Program (LOGCAP) contract with the Army.
Central Command identified the requirements for
contingency planning, including planning for
extinguishing oil well fires and assessing damage to oil
facilities in the immediate aftermath of hostilities.
The requirement was within the scope of the LOGCAP
contact, and Kellogg performed the planning under a task
order issued under the LOGCAP contract. To invite other
contractors to compete to perform a highly classified
requirement that Kellogg was already under a
competitively awarded contract to perform would have
been a wasteful duplication of effort. It would also
have delayed Central Command's war planning in order to
obtain security clearances for potential competitors as
well as to conduct the additional competition.
According to Fortune Magazine, the LOGCAP pays
Halliburton through what's called a cost-plus
arrangement, meaning that Kellogg is guaranteed to
recover its expenses, plus receive a set profit,
provided the contract terms are met. To date, Kellogg
has received $830 million from the program.
Because the Iraqi oil fields did not suffer the
devastation that some had feared, it now seems that
Kellog's contract will not realize its maximum ceiling
cost of $7 billion during the course of its two-year
contract. But detailed contract information released by
the Corps of Engineers shows that Halliburton, through
Kellogg, stands to profit to the tune of 7 percent of
the value of the contract, or as much as $490 million
over its two-year duration.
It should be noted
that Iraqi contracts could not come at a better time for
Halliburton, whose business had been dogged by a host of
troubles - from a slowdown in domestic oil production to
nightmare asbestos litigation. Last year, revenues
declined 6 percent, to $12.6 billion, and the company
reported a net loss of $984 million.
What
particularly incenses many critics is that Halliburton
is still paying annual compensation to its former chief
executive officer from 1995 to 2000, Dick Cheney. Cheney
received stock and stock options in Halliburton valued
at $33 million when he stepped down in 2000 to run for
office, this after just five years heading the company.
He continues to receive $180,000 a year from Halliburton
in deferred compensation.
Cheney's management of
Halliburton left two major legacies. One was the
company's $ 7.7 billion acquisition of rival Dresser
Industries in 1998. The deal wound up saddling
Halliburton with massive asbestos liability from a
Dresser subsidiary that had once used the carcinogen to
make bricks and pipe coatings. The other is an
investigation by the Securities and Exchange Commission
into accounting irregularities. The agency wants to know
whether the company improperly booked revenues from
customers that were disputing construction cost
overruns.
In a response to Flower's letter,
Waxman noted that it "does not specify the scope of the
work that can be done under the contract. Instead, your
letter seems to indicate that the contract to repair and
continue operations of Iraq's oil infrastructure can
encompass services necessary to support the mission in
the near term, which is a potentially broad and
open-ended directive. It may be the case that the
administration had valid reasons for granting a
sole-source contract for emergency work during armed
hostilities. It is harder to understand, however, what
the rationale would be for a sole-source contract that
has a multi-year duration and a multi-billion dollar
price tag. Yet this appears to be the type of contract
that was awarded to Kellogg Brown & Root."
A
bit more blatant is a bill in the US Senate, sponsored
by a Senator from California, which mandates that when
Iraq's mobile telecom services are rebuilt, they should
not use the global GSM platform - a standard which even
the Pentagon supports - that Iraq and the rest of the
Asian world have been using, but instead use a
less-popular technology called code division multiple
access (CDMA). Orders for CDMA will result in royalties
accruing to Qualcomm, which just happens to be located
in southern California.
The most sought-after
contract will be awarded by the USAID and will cover the
initial work to rebuild Iraq's roads, water and power
systems, schools and hospitals. Bidding was restricted
to five American companies for the same official reasons
that Kellogg won its contract without any competition:
the need for speed and for security clearances. But
government contract experts say that those needs have
been exaggerated and that they may be violations of
international trade agreements as well as federal rules.
None of this is doing much to generate goodwill
for the United States. As an article in the US news
magazine New Republic, itself a strong supporter of the
invasion of Iraq, noted, "The perception that the United
States invaded Iraq so Halliburton can begin pumping oil
for Exxon is shockingly widespread and is a major part
of the reason the Bush administration had so much
difficulty winning world public opinion for its Iraq
campaign."
Meanwhile DynCorp, a major US
military contractor, has won a multi-million-dollar
contract to police post-Saddam Iraq. DynCorp, which has
donated more than $157,000 to the Republican Party,
began recruiting for a private police force in Iraq last
week on behalf of the US State Department.
Over
at the State Department, as a New York Times editorial
noted, the Agency for International Development has
limited bidding to a short list composed mainly of
government contracting insiders. These include the
Bechtel Group, on whose board sits George Schultz, a
former secretary of state under Ronald Reagan, and the
Fluor Corporation, whose recently retired chief
executive is being considered by the Pentagon to run
Iraq's oil industry.
Companies excluded from
bidding for these contracts are justifiably upset,
including those based in the UK, a staunch supporter of
Washington's unpopular preventive war in Iraq. Under
World Trade Organization (WTO) rules, procurement
contracts are supposed to be open to all bidders,
domestic and foreign.
British companies have
some advantages, though, as the US is inclined to favor
contractors from coalition countries. In fact, in a
little-noticed amendment to the Bush's administration's
war budget request, Representative Mark Kennedy
(Minnesota, republican) tacked on a clause that stops
money being spent through companies incorporated in
France, Germany or Syria.
In fact, European
companies offer much valuable experience in rebuilding
in war zones in general and in Iraq in particular. As an
article in Newsweek pointed out, hundreds of European
firms have gone to war zones all over the world, and
even to the US. The British construction firm AMEC
helped rebuild energy-supply lines in Bosnia and Kosovo,
and worked on the Pentagon and the World Trade Center
site after September 11. From France, Alcatel rebuilt
phone networks in Kosovo and Technip-Coflexip has
partnered with both Halliburton and Bechtel on energy
projects in the Middle East. Siemens of Germany is
currently rebuilding Afghanistan's decrepit fixed-line
phone system, and clearly has the experience to do the
same in Baghdad.
Many European firms have done
recent work in Iraq under the United Nations' oil for
food program. More than 50 British firms have experience
in Iraq. French construction firms such as Bouyges
nabbed scores of Iraqi building contracts through the
1970s and 1980s. Alcatel and Siemens helped build Iraqi
power and communications grids, some of which are built
to European standards.
Members of Congress plan
to introduce legislation and to use the General
Accounting Office to bring the contracting process
governing the awards of $2.4 billion of reconstruction
projects out in the open.
The European
Commission has stated that it would scrutinize the way
US authorities award reconstruction deals in Iraq. The
commission is to monitor deals to see if Washington
breaches international trade rules on government
contracts to see if they fall short of WTO rules on
government procurement.
(©2003 Asia Times Online
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