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To the victor go the war spoils

Andrea Shalal-Esa in Washington | April 16, 2003 09:11 IST

Rebuilding Iraq's roads, oil fields, ports, power grids and communications networks could cost $20 billion a year -- and the lion's share of the spoils is likely to go to a handful of well-connected US companies.

Companies not already familiar with arcane US defence procurement policies and most foreign companies are likely to be excluded from billions of dollars of government contracts, according to US military officials and defence analysts.

But they say that stems from complicated contracting rules, and the small number of companies specialised to do the work -- and is not a reflection of corruption.

Nonetheless, US lawmakers have already protested against their government's decision to award no-bid contracts to several companies, as well as the closed-door nature of the process.

Others have raised questions about whether companies like Halliburton Co, once headed by Vice-President Dick Cheney that has already won a no-bid deal to put out Iraqi oil well fires, are getting special treatment.

Several other companies, like Bechtel Group Inc and Fluor Corp, are vying for a $600 million contract from the US Agency for International Development to do extensive rebuilding of Iraqi infrastructure.

"To the victor go the spoils," said Richard Aboulafia with Virginia-base Teal Group. "It's going to be a protected hunting ground for the relatively small number of US companies that have the critical mass and capabilities necessary to do these jobs -- and that's a very small list indeed."

The controversy has put the limelight on a specialised military procurement process that tends to favour big defence industry insiders, while leaving smaller businesses, foreign companies and sector newcomers in the dust, analysts agree.

Financial Bonanza

"Victory should not turn into an undeserved financial bonanza for companies that have cultivated close ties with the Bush administration," a New York Times editorial said on Monday.

The decision to give Halliburton an interim contract valued at up to $7 billion looked 'like naked favouritism', it said.

The US Army Corps of Engineers fought back on Monday, saying the value of the contract would be 'significantly' lower, given that all but one of the Iraqi oil fires were already out and damage had been less severe than feared.

But lawmakers said that even if the contract amounted to just 10 per cent of the ceiling, that still represented a huge sum -- and one that should have been competitively bid.

The General Accounting Office, the investigative arm of Congress, has begun a thorough review of the issue, vowing that no company will be excluded from closer scrutiny.

But analysts say the GAO likely will not find improprieties. They acknowledge the US defence community is incestuous, with top military officials often taking high-paid jobs in industry after they retire. But they say only a few firms are capable of the mammoth task of rebuilding Iraq, which the Council on Foreign Relations says could cost $20 billion a year.

Former secretary of state George Schultz, a proponent of the US war in Iraq and member of the Bechtel board, denied using his political connections to help win work for Bechtel and said he was not active in the company's daily management.

"I don't exert any influence at all as far as the contracting goes," Schultz told Reuters in a telephone interview from his office at Stanford University.

He said recent articles critical of the reconstruction contracts reflected, 'the sort of suspicious atmosphere that seems to pervade a lot of the people in Washington', a key reason he moved to California when he retired 15 years ago.

Schultz said Bechtel had a track record of successfully putting out raging oil fires in Kuwait after the 1991 Gulf War and had the resources needed to quickly mobilise and accomplish a large-scale reconstruction effort.

"It's an unfair playing field, not necessarily because of bribery or corruption," said Chris Hellman at the Centre for Defence Information, a Washington-based military watchdog. He says competition is limited because there are so few companies specialized in the kind of work required in Iraq and they tended to have a head start because of prior experience.

Expedited Contracts

For instance, the Army Corps of Engineers said it gave Halliburton the fire-fighting contract because it already had equipment and people in the region under a contingency planning contract awarded by the army in December 2001. It said all but one of the nine oil well fires in Iraq had already been put out, but that would not have happened if it had waited 45 days to publicly compete the bid.

Loren Thompson, director of the Virginia-based Lexington Institute, said criticism of the US government's handling of the reconstruction contracts was 'utterly baseless' and revealed na´vetÚ about US government procurement.

"It is the most thoroughly regulated, closely scrutinised government procurement system in the world," Thompson said, although he acknowledged the system tended to favour the biggest companies with a history of earlier government contracts. "You can't just give someone a contract. You'd go to jail."

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