Iraq Reconstruction: How Not To Do It

A history of the waste, corruption, and incompetence surrounding the effort to rebuild a country.

| Tue Aug. 10, 2004 3:00 AM EDT

Late last year, an investigation by Mother Jones uncovered a network of K Street firms in Washington that were lobbying government officials for reconstruction contracts in Iraq. Timothy Mills, a partner at Patton Boggs, a lobbying firm, said that the rebuilding process in Iraq was nothing less than a government-sanctioned bonanza: "Western companies, if they make the right connections early enough, have the potential of being swept into the mainstream of Iraqi commerce." Charges of cronyism ran rampant. But only over the past few months has the media discovered that this cronyism was such an integral reason for the botched reconstruction effort. Iraq, it turns out, has been ill-served by those who have tried to rebuild it.

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On Monday, The New York Times spoke out, saying, "Things have gone so obviously wrong with America's approach to rebuilding Iraq." The list of failures runs long. Of the $18.4 billion allocated for reconstruction last fall, only $600 million has been put to use. (At the time of the handover, authorities had spent a paltry $366 million.) Meanwhile, many projects remain stalled, stifled by both the unstable security conditions and the incompetence of the occupation authorities.

None of this is exactly new information. But when one takes the broad view of the reconstruction process, the breadth and depth of corruption and incompetence remains staggering. The blame extends all the way up, from the civilian occupation in Iraq, to the private reconstruction contractors, to the Bush administration itself.

1. The Coalition Provisional Authority

Right before the handover on June 28, the Government Accountability Office (GAO) issued a report outlining the failures of the reconstruction effort. Electricity in Iraq was still sputtering below prewar levels. Iraqi security forces were poorly trained. Of the $58 billion pledged worldwide to help rebuild Iraq, only about $13.7 billion had been spent (with only another $10 billion in the pipe). Furthermore, the GAO report suggested that the civilian authority in Iraq, the Coalition Provisional Authority (CPA), was seriously understaffed, needing about three times more employees than it had. At the time, the CPA's inspector general didn't even know exactly how many employees the CPA had, so shoddy was the record-keeping. Meanwhile, a Christian Aid report discovered that the CPA had failed to account for billions in Iraqi oil revenue, and that the CPA had resisted investigations into the matter.

An independent audit in late June and July, by the CPA's Inspector General, found a striking pattern of waste and sloppy accounting by U.S. civilian authorities. The audit found, for instance, that the CPA had paid $200,000 for 15 police trucks, which may or may not have ever been delivered, and currently cannot be found. Of the 43 contracts reviewed, 29 had "incomplete or missing documentation." An earlier audit by the accounting firm KPMG had found similar problems, including "lax financial controls in some Iraqi ministries" and "inadequate accounting systems." Most glaringly, the coalition had failed to install export controls to determine how much oil Iraq was exporting, preventing auditors unable to verify Christian Aid's suspicions about lost oil revenue. Earlier, KPMG had complained that it was facing "resistance" from coalition officials, who tried to hamper the firm's efforts.

It had also been discovered, late in June, that military commanders had been disbursing between $1 and $2 billion, using frozen Iraqi assets from the first Gulf War in 1991. American military teams would bring with them satchels of $100 to commission repairs and pay for them. The informal nature of these transactions made it difficult to keep tabs on spending.

Meanwhile, the Washington Post reported that most of the 2,300 projects then underway would involve foreign laborers, rather than Iraqis. Only about 15,000 Iraqis had been hired for reconstruction projects; this in a country of 22 million facing an unemployment rate perhaps as high as 70 percent. The Post later discovered that American contractors have hired tens of thousands of workers from countries such as India to come work in Iraq for rock-bottom wages. Dharmapalan Ajayakumar, a kitchen worker for Kellogg Brown & Root, Inc., claimed that he was "tricked" into coming to Iraq by a recruiting agent, and earned less than $7 a day. The cheap labor, of course, continues to offer an incentive for firms not to hire Iraqis.

Not everyone, of course, had been making out badly. Recently, the Washington Post discovered that Halliburton Co. and other U.S. contractors had made out [REPEATS] with at least $1.9 billion from Iraqi funds. The contractors were originally supposed to be paid with money approved by Congress, but the CPA later decided to use Iraqi money, which was subject to "fewer restrictions and less rigorous oversight." Contracts that used Congressional funds would, by law, require rigorous oversight and an open bidding process. That lack of oversight would come back to haunt the reconstruction effort, but at the time, it seemed easier to use Iraqi money. Unfortunately, no one told the Iraqis: An analysis of CPA documents revealed that the agency often authorized Iraqi money even when it didn't have Iraqi representation at its meetings.

The handover hardly improved matters. Iraq Revenue Watch, an independent watchdog agency, reported that $2.5 billion of Iraqi oil money was spent on "ill-conceived projects" in the run-up to the handover, at which time control over the money would pass to the interim Iraqi government. Iraq has yet to see the fruits of those projects. Due to security and overhead costs, western contractors have been unable to pursue some $4.3 billion worth of water projects. In regions such as Sadr City and Basra, the water is full of sewage, triggering outbreaks of typhoid and Hepatitus E. In perhaps the most dismal sign of the reconstruction effort, brigade commanders have taken to distributing cash directly to unemployed Iraqis, hoping to win over the locals and prevent further attacks.

2. Private Reconstruction Firms

If the CPA was mostly incompetent, some of the other officials and contractors surrounding the reconstruction effort were far worse. In April of 2004, the Chicago Tribune had reported that ten companies receiving contracts in Iraq "have paid more than $300 million in penalties since 2000 to resolve allegations of bid rigging, fraud, delivery of faulty military parts and environmental damage" while working on projects worldwide. One British firm received $780 million, despite repeated fraud convictions, and despite being banned from U.S. government work only a few years ago. Why were these companies able to secure contracts? In late 2001, the Bush administration had repealed a Clinton-era law that ensured "repeated violations of federal law would make a company ineligible for new contracts."

The companies were also rewarded well for their lobbying efforts on K Street. A report (PDF) to the House of Representatives committee on government reform noted that $107 billion worth of contracts had been awarded without bidding.

It didn't take long for those shady companies to start wreaking havoc. Halliburton, which had received deals worth up to $18 million, drew criticism after former employees came out with allegations of large-scale waste. The lists were outrageous: "$50,000 a month for soda, at $45 a case; $1 million a month to clean clothes — or $100 for each 15-pound bag of laundry." When employee Marie DeYoung tried to complain to her bosses, they allegedly told her, "We can be as dumb and stupid as we want in the first year of a war, nobody’s going to care." Other former employees testified (PDF) before the House on further Halliburton abuses, which included the claim that "brand new $85,000 trucks were abandoned or 'torched' if they got a flat tire or experienced minor mechanical problems."

Earlier, critics had claimed that Halliburton was overcharging on oil imported into Iraq from Kuwait, costing the Army some $61 million. The allegation that led the U.S. military to award new oil-importing contracts to seven Turkish firms. Halliburton had also allegedly overcharged the Pentagon by $27.4 million in providing meals for troops abroad. NBC news had discovered that Halliburton served food to troops from "dirty" kitchens. Finally, an audit in late July, by the CPA Inspector General, found that KBR, a Halliburton subsidiary, had lost track of more than $18 million in equipment. Further investigations into company waste are still ongoing.

Where there's Halliburton, former CEO and current vice-president Dick Cheney can't be far behind. In late May, Time Magazine revealed an internal Pentagon email suggesting that Cheney's office had been intimately involved in helping to secure a $7 billion no-bid contract for his former company. Pentagon officials later acknowledged that Undersecretary of Defense Douglas J. Feith had discussed a March 2003 Halliburton contract with Cheney's office. As the Los Angeles Times discovered, a contracting officer would ordinarily be tasked with awarding contracts, not a political appointee like Feith.

The Bush administration did everything it could to prevent further inquiries. When the International Advisory and Monitoring Board requested that the administration turn over internal audits on more than $1 billion no-bid contracts awarded to companies such as Halliburton, they were rebuffed. And Government Reform Chairman Tom Davis (R-VA) initially refused to allow current Halliburton employees to testify under oath about the company's waste and abuse, according to Rep. Henry Waxman (D-CA). (In late July, the employees finally testified, though shortly thereafter, committee Republicans defeated a motion to subpoena Bush administration officials.)

3. The Bush Administration

Amidst all the corruption and waste surrounding the reconstruction, the roles of both the Pentagon and the Bush administration have yet to be fully explored. But its fingerprints are everywhere. The Center for American Progress recently discovered that the industry oversight in Iraq was remarkably lax, perhaps because most of the top government watchdogs came from industry positions. Defense Department Inspector General Joseph Schmitz, a conservative activist and Bush ally, saw fit to declare that Halliburton's problems were "not out of line with the size and scope of their contracts." Schmitz also allowed Boeing to pursue a lavish contract on air refueling tankers, despite a report noting that the Air Force "used inappropriate procurement strategies." The allowance raised questions about Schmitz' past connections to the airline industry.

Such questionable moves were common among government watchdogs. Andrew Natsios, head of the U.S. Agency for International Development, approved $2.38 billion worth of contracts for Bechtel Corporation, even though he was in a perfect position to know how fraudulent the company really was. Natsios had worked intimately with Bechtel on the Big Dig project in Boston, where the company's costs had ballooned without end, costing taxpayers millions. To date, Natsios has refused to release information on any of the contracts his agency has awarded.

The corruption in Iraq spread far beyond the overseers. In April, the Los Angeles Times reported that John A. Shaw, a senior Defense Department official, had manipulated the reconstruction effort to "reward associates and political allies." Shaw would enter Iraq illegally, disguised as a Halliburton employee, fabricate problems with reconstruction, and then use his role in the Pentagon's inspector general to recommend that these fake problems be fixed. Such problems, of course, would inevitably require multimillion dollar contracts, contracts that would be directed to Shaw's industry friends. This wasn't the first time Shaw had been caught. In April, Shaw had found himself under investigation for allegedly altering a mobile phone contract so that it would benefit a phone consortium "that includes friends and colleagues."

Shaw has garnered most of the headlines, but the cozy relationship between the defense industry and the Department of Defense goes far beyond one person. As a report by the Project on Government Oversight (POGO) revealed in late June, over 224 former senior government officials and members of Congress were employed in some of the largest defense contractors in the country. Many of those officials were involved in procurement before moving onto industry positions. The report also notes that the top 20 contractors had made $46 million in campaign contributions, and spent almost $400 million on lobbying.

Meanwhile, the Los Angeles Times reported that advocates of war are now profiting from Iraq's reconstruction. The most extreme example is former CIA Director James Woolsey, who remains a senior government advisor on Iraq issues, even as he works for two private companies that do business in Iraq. Before the war, Woolsey had set up the Committee for the Liberation of Iraq, a group advocating regime change. (As early as September 11, 2001, Woolsey was raising the possibility of a link between Saddam Hussein and al Qaeda.) More recently, the Times discovered that Woolsey's wife joined Fluor Corp. last January; soon afterwards, the company won about $1.6 billion in reconstruction contracts.

This long trail of corruption and waste would be bad enough on its own, but let's not forget there are also lives at stake here. Every dollar wasted by Halliburton, or bilked by John Shaw, or tossed away in crony contracts, is a dollar that could be spent on water projects, or training Iraq's security forces, or creating employment opportunities. Moreover, the incompetence and utter crookedness of the occupational authorities, as well as of the private contractors, have given citizens of Iraq ample cause to distrust the Americans completely. The U.S. had the chance to rebuild Iraq, to foster a democratic society, and to earn the trust and goodwill of Iraqis. That opportunity is all but sunk, due in no small part to the businesses and government officials who raided the reconstruction funds and cheated the Iraqi people.

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