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  Daily Briefing  
August 28, 2003

Cost of rebuilding Iraq is rising

By Shane Harris
sharris@govexec.com

In one of the strongest signals to date that post-war rebuilding costs in Iraq are escalating, U.S. authorities in Baghdad plan to spend an additional $350 million on construction work led by engineering firm Bechtel Group Inc. The company is the government's prime contractor for repairing bridges, hospitals, schools, airports and the electrical grid, all of which were damaged in the recent war.

Bechtel was awarded the contract in April through the Agency for International Development. An AID spokeswoman said Thursday that the contract ceiling itself wasn't being raised. Doing so would require congressional authorization, she said.

Rather, the U.S. occupation chief in Baghdad, Ambassador Paul Bremer, has chosen to allocate the $350 million from a $2.5 billion rebuilding fund Congress appropriated this year, she said. The White House hasn't requested any major new funds for rebuilding Iraq, but a number of reports in recent days have suggested a large supplemental funding request to Congress is imminent. The Wall Street Journal first reported news of Bremer's decision Thursday.

The task of rebuilding Iraq's beleaguered infrastructure has been held up by the lack of security in the country. More coalition troops have been killed since President Bush officially declared major combat over in May, and contractors have recently been killed in fighting, as well. Contractors cannot work easily or as quickly as they'd like in areas that are still plagued by small arms battles and sabotage, Defense Department officials have said.

Administration officials, including Bremer, have stressed that other countries and foreign donors, as well as foreign corporations, must be brought into the rebuilding effort. However, the officials have maintained that the U.S. government should continue to direct the project.

Non-U.S. groups have been slow to belly up to the table, leery of America's dominant role and the danger in Iraq. At a reconstruction financing conference held in Washington this week by an international development firm, some executives from foreign companies voiced frustration that they couldn't secure risk insurance in their own countries so that they could take part in the rebuilding as subcontractors to U.S. firms.

The U.S. Export-Import Bank is engaged in an “ongoing conversation” with administration officials and the government's contractors over a proposal to fund some near-term rebuilding costs, said David Chavern, the bank's deputy general counsel. The Ex-Im Bank, a federal agency, would recoup its loan through the future Iraqi oil sales.

Chavern, however, gave no indication that the loan package was forthcoming. Various experts and officials close to the negotiations have estimated the loan could amount to at least $4 billion.

Meanwhile, there are more signs post-war costs are growing.

Kellogg, Brown & Root, a subsidiary of oil services firm Halliburton, has billed the government for almost $1.2 billion for providing troop and logistics support to the armed forces, according to an Army spokeswoman. KBR provides the housing and feeding of soldiers and also maintains their housing facilities.

Those services are provided under the Logistics and Civil Augmentation Program (LOGCAP). The cost of the Iraq operation has already topped Halliburton's other forays with U.S. armed forces in Africa, Europe, Saudi Arabia, Kuwait and Afghanistan. Only its work in the Balkans, in which it earned about $2.2 billion, has cost more than Operation Iraqi Freedom.

KBR also is trying to revitalize Iraq's oil infrastructure under a contract with the Army Corps of Engineers. To date, the Corps has spent $705 million on that contract, a spokesman said. KBR is compensated on a cost-plus basis, meaning the company is reimbursed for expenses and is awarded an additional percentage fee. The Corps spokesman said the contractor's fee could range anywhere between 2 and 5 percent.

Some contracting experts, as well as congressional investigators, have criticized cost-plus contracts for encouraging companies to spend more than is necessary to complete their work. The General Accounting Office reprimanded the Army and KBR for allowing costs to balloon during the Balkans operation.

“The Army should have done more to control costs,” investigators reported in September 2000. GAO found “a widespread view . . . that [military personnel] had little control over the contractor's actions once it was authorized to perform tasks.”

Auditors found a number of instances where the Army let KBR perform services that the Army didn't need, which helped increase costs. Army officials “frequently have simply accepted the level of services the contractor provided without questioning whether they could be provided more efficiently or less frequently and at lower cost,” the report said.

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  • Only a few months to turn Iraq around, former Defense official says   (08/07/03)
  • Lobbyists hustle for reconstruction business in Baghdad   (08/07/03)
  • Guerrilla warfare in Iraq threatens peace, reconstruction   (08/06/03)
  • Iraq reconstruction moves into new phase   (07/29/03)
  • AID awards contract for Iraq economic recovery   (07/25/03)

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