Iraq Contracts: Inspectors General Point to Waste and Fraud

Following on my post from last week about the Senate Appropriations Committee’s outrage at the scale of waste and fraud endemic to Iraq contracts, I offer two specific examples, both disclosed today in separate official audits.

To begin with, the Office of the Special Inspector General for Iraq Reconstruction (SIGIR) released an audit (.pdf) of a $900-million, cost-plus contract awarded to Parsons Delaware Inc., in March 2004 to design and build infrastructure in support of Iraq’s security and justice sectors. This was to include the construction of things like prisons, fire houses, and police stations. As of May 21, 2008, the firm had spent $333 million—of which $142 million (43 percent of the total) was wasted on projects that were never completed. Now, it’s easy to point the finger at Parsons. But as SIGIR makes clear, blame also rests with the U.S. government for lack of oversight. Only 10 contract officers, for example, were assigned to the Parson’s contract—a project that required about five-to-six times as many. To make matters worse, the audit itself was compromised by inadequate record-keeping by federal agencies. According to the report, SIGIR “contacted a number of responsible contracting offices, but at the conclusion of our review the U.S. government has been unable to locate the files for the contract bid and award process… SIGIR also could not locate inventory records for items purchased by the contractor in support of construction activities.”

Meanwhile, the U.S. Small Business Administration Office of Inspector General (SBA IG) issued a report (.pdf) today, suggesting that Moyock, North Carolina-based Blackwater Worldwide may have evaded millions of dollars in taxes by misrepresenting its legal status and improperly bid for contracts reserved for small businesses. Blackwater has long claimed that its 1,000 Iraq-based operators legally qualify as “independent contractors,” meaning that the firm merely hires personnel and funnels them to contract work rather than providing direct management and oversight. For this reason, the company argues, it qualifies as a small business—this despite its $1 billion contract windfall since 9/11, not to mention its burgeoning fleet of planes, ships, blimps, and armored vehicles. The SBA IG investigated 39 small business contracts obtained by Blackwater—38 awarded by the Pentagon; one by the Department of Veterans Affairs—as well as the company’s $1.2 billion security contract with the State Department. It concluded that far from allowing its contractors to work for themselves, Blackwater helped establish shift schedules, monitor mission and personnel performance issues, and enforce conduct and performance standards. The State Department contract, in particular, “required Blackwater to provide a large number of supervisory positions to oversee the security personnel.” The stuff of small business? Not quite, and the SBA IG has now forwarded its findings to inspectors general at the Pentagon and the Department of Veterans Affairs for further investigation.