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Iraq: Security Pushes Up Contract Costs

by Sue PlemingReuters
March 31st, 2004

WASHINGTON- Soaring security and insurance costs are driving up the price of contracts to rebuild Iraq and more funds may be needed, said a report on Wednesday by the U.S.-led authority's chief inspector in Iraq.

Stuart Bowen, inspector general for the Coalition Provisional Authority, said security costs and the oversight of spending and control of cash would be among his main concerns in the months ahead as his team looks at U.S.-funded contracts.

In a quarterly report made public on Wednesday online at www.cpa-ig.org, Bowen said security ate up 10-15 percent or more of the total costs of Iraqi contracts, and he predicted more funding would be needed to cover this.

Contractors have become a greater target in Iraq. Four U.S. contractors were killed on Wednesday in a brutal attack in Falluja, their burned and mutilated bodies dragged by cheering Iraqis.

"With continued and significant threats to human life being experienced in the Green Zone (in Baghdad) and throughout Iraq, the inability to predict the costs of security (including insurance), raises questions about the need for more funding -- Iraqi, donor, or U.S., to accomplish the reconstruction mission," said the report delivered to Congress on Tuesday.

Bowen, a former White House lawyer, said his office would work closely with other U.S. agencies to see whether the government should provide insurance or find other ways to control security-related costs without compromising safety.

The report did not provide estimates on how much more should be budgeted for security but contractors have complained that the price of keeping their staff safe in such a hostile environment has cut deeply into profit margins.

$18.6 BILLION

All contractors working in Iraq have expensive private security to protect staff, and some have moved nonessential personnel to neighboring countries to reduce the risk.

Bowen was appointed in January to review how U.S. taxpayer and Iraqi funds were being spent in Iraq, particularly the $18.6 billion appropriated by Congress for reconstruction.

The contracting process in Iraq has been criticized, particularly contracts handed out without competition to among others, Halliburton, the oil services company once run by Vice President Dick Cheney.

As of March 10, contracts using U.S. and Iraqi funds were valued at $9.9 billion, the report said. Contracts awarded without competition amounted to nearly a third of the total amount.

Bowen said his office was focusing on 15 areas, including the June 30 deadline for handing over power to a transitional Iraqi government and the related costs, funding controls, contracting irregularities and logistics management.

The report said U.S. government agencies and the CPA had been asked to request contractors with deals worth more than $5 million to provide details of their internal compliance systems, code of ethics and code of conduct before April 15.

As of March 2, the report said defense auditors had issued 187 reports related to Iraqi relief and reconstruction. These resulted in audits of $6.8 billion worth of work.

Criminal investigators at the Pentagon have also been examining one conflict of interest case, four involving counterfeiting, three of weapons recovery, two of false claims or statements, four theft cases and four involving bribery and corruption, the report said.

The Pentagon has also opened a criminal investigation into whether Halliburton overcharged for some of its work in Iraq.



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