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IRAQ: Idle Contractors Add Millions to Iraq Rebuilding

by James GlantzThe New York Times
October 25th, 2006

Overhead costs have consumed more than half the budget of some reconstruction projects in Iraq, according to a government estimate released yesterday, leaving far less money than expected to provide the oil, water and electricity needed to improve the lives of Iraqis.

The report provided the first official estimate that, in some cases, more money was being spent on housing and feeding employees, completing paperwork and providing security than on actual construction.

Those overhead costs have ranged from under 20 percent to as much as 55 percent of the budgets, according to the report, by the Special Inspector General for Iraq Reconstruction. On similar projects in the United States, those costs generally run to a few percent.

The highest proportion of overhead was incurred in oil-facility contracts won by KBR Inc., the Halliburton subsidiary formerly known as Kellogg Brown & Root, which has frequently been challenged by critics in Congress and elsewhere.

The actual costs for many projects could be even higher than the estimates, the report said, because the United States has not properly tracked how much such expenses have taken from the $18.4 billion of taxpayer-financed reconstruction approved by Congress two years ago.

The report said the prime reason was not the need to provide security, though those costs have clearly risen in the perilous environment, and are a burden that both contractors and American officials routinely blame for such increases.

Instead, the inspector general pointed to a simple bureaucratic flaw: the United States ordered the contractors and their equipment to Iraq and then let them sit idle for months at a time.

The delay between “mobilization,” or assembling the teams in Iraq, and the start of actual construction was as long as nine months.

“The government blew the whistle for these guys to go to Iraq and the meter ran,” said Jim Mitchell, a spokesman for the inspector general’s office. “The government was billed for sometimes nine months before work began.”

The findings are similar to those of a growing list of inspections, audits and investigations that have concluded that the program to rebuild Iraq has often fallen short for the most mundane of reasons: poorly written contracts, ineffective or nonexistent oversight, needless project delays and egregiously poor construction practices.

“This report is the latest chapter in a long, sad and expensive tale about how contracting in Iraq was more about shoveling money out the door than actually getting real results on the ground,” said Stephen Ellis, a vice president at Taxpayers for Common Sense in Washington.

“These contracts were to design and build important items for oil infrastructure, hospitals and education, but in some cases more than half of the money padded corporate coffers instead,” he said.

Although the federal report places much of the burden for the charges squarely on the shoulders of United States officials in Baghdad, the findings varied widely over a sampling of contracts examined by auditors, from a low of under 20 percent for some companies to a high of over 55 percent.

One oil contract awarded to a joint venture between Parsons, an American company, and Worley, from Australia, had overhead costs of at least 43 percent, the report found. One contract held by Parsons alone to build hospitals and prisons had overhead of at least 35 percent; in another, it was 17 percent.

The lowest figure was found for certain contracts won by Lucent, at 11 percent, but the report indicates that substantial portions of the overhead in those cases could not be determined.

The report did not explain why KBR’s overhead costs on those contracts — the contracts totaled about $296 million — were more than 10 percent higher than those at the other companies audited. Despite past criticism of KBR, the Army, which administers those contracts, has generally agreed to pay most of the costs claimed by the company.

Melissa Norcross, a spokeswoman for KBR, said in a written reply to questions, “It is important to note that the special inspector general is not challenging any of KBR’s costs referenced in this report.”

“All of these costs were incurred at the client’s direction and for the client’s benefit,” she said, referring to the Army Corps of Engineers, which is in charge of the oil contract.

But a frequent Halliburton critic, Representative Henry A. Waxman, a California Democrat who is the ranking minority member of the House Committee on Government Reform, disputed those assurances. “It’s incomprehensible that over $160 million — more than half the value of the contract — was squandered on overhead,” Mr. Waxman said in a written statement.

The majority leader of the same committee, Thomas M. Davis III, a Virginia Republican, declined to comment.

A spokeswoman for Parsons, Erin Kuhlman, said the United States categorized overhead and construction costs differently from contract to contract in Iraq, making it difficult to make direct comparisons. “Parsons incurred, billed and reported actual costs as directed by the government,” she said.

In Iraq, where construction materials are scarce and contractors must provide security for work sites and housing for Western employees, officials have said they expect the overhead to be at least 10 percent, but the contractors and American officials have grudgingly conceded that the true costs have turned out to be higher.

But even the high of 55 percent could be an underestimate, Mr. Mitchell said, because the government often did not begin tracking overhead costs for months after the companies mobilized. He added that because of the haphazard way in which the government tracked the costs, it was not possible to say how well the figures reflected overhead charges in the entire program.

The report’s conclusions were drawn from $1.3 billion in contracts for which United States government overseers actually made an effort to track overhead costs, of the total of $18.4 billion set aside for reconstruction in specific supplemental funding bills for the 2006 fiscal year.

When all American and Iraqi contributions are added up, various estimates for the cost of the rebuilding program range from $30 billion to $45 billion. Language included in the Defense Authorization Act, signed by President Bush last week, states that the inspector general’s office will halt its examination of those expenditures by October of next year.

Maj. Gen. William H. McCoy, who until recently commanded the Persian Gulf region division of the Corps of Engineers, disputed some of the inspector general’s findings in a letter appended to the report. Things like “waiting for concrete to cure” could still be taking place during what seem to be periods of inactivity, General McCoy wrote, so a quiet period “does not mean that the project is not moving forward.”

But many of the delays came during 2004 and took place in response to political developments in Iraq, the inspector general’s report says. The American occupation government, the Coalition Provisional Authority, mobilized many of the companies early that year.

After the authority went out of existence in June 2004, handing sovereignty to the Iraqi government, top American officials then kept the companies idle for months as the officials rewrote the rebuilding plan, and ran up costs as little work was done.



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