Iraqis say contract bidding is rigged
U.S. lawmaker calls for inquiry
By MICHAEL HEDGES and DAVID IVANOVICH
Copyright 2003 Houston Chronicle
BAGHDAD, Iraq -- The scramble to win U.S.-financed contracts to rebuild Iraq has been marred by misunderstandings and complaints from Iraqis that the American bidding process is bewildering and biased.
Many Iraqi businessmen feel shut out of the billion-dollar reconstruction of their country. While seeking subcontracts from huge American companies overseen by U.S. government agencies, the Iraqis claim that contracts have gone to foreign companies that charged many times more for the same work that they do.
After bids are solicited, the Iraqis say, contract winners are not announced and losers hear nothing, creating suspicions among the Iraqis that the process is rigged.
While acknowledging problems -- and noting that the work is done in a war zone, which creates the need for haste and a certain amount of secrecy for security reasons -- the Americans insist that Iraqi subcontractors are being hired and that the bidding process is impartial. Still, at least one member of Congress, Rep. Henry Waxman, D-Calif., has demanded that the Bush administration look into the process.
"Until now, all the investment in Iraq has been for foreigners, not Iraqis," said Talal Al Saab, a general contractor who had dozens of employees before the war. "The process of awarding the contracts is not fair to us. I can't put people to work, and that is hurting the stability of the country."
Ayad Abdul-Latif, a bidding engineer for Gurjai and Sons, General Contractors, showed a request for quotations that sought a contractor to remove waste oil. The proposal did not specify where the oil was, or how much there was of it. "How can you make a bid if you don't know the location?" he said.
Fadhil Ajina, an architectural engineer in Baghdad with an impressive résumé, said American companies refused to hire people such as himself to oversee the quality of work on projects like restoring schools and hospitals, and instead hired small Iraqi companies no one had heard of. The result, he said, was shoddy work.
"They forgot quality," he said. "They just wanted someone who could do the work in 30 or 40 days. I don't blame them, they were under pressure to get results fast. But repairing a school is not just painting the walls."
Iraqi businessmen are not only frustrated by the American process, but by corruption among their own countrymen as well. They claim that when American companies hire large Iraqi firms as major subcontractors, the Iraqi companies then demand a kickback called "the commission" from smaller firms in exchange for a piece of the job.
"For example, an Iraqi came to me and said I could get a job reconstructing 50 schools if I gave him $50,000," said Saad Aljanabi, a construction contractor.
Aljanabi said he did not pay the man, and could not prove it was a real bribe attempt. But he said he has not been able to find out from American officials who eventually won the contract.
But as with so much else in Iraq, U.S. officials involved in the contracting process see the situation differently than the Iraqis do.
Neil Price, the supervisory contracting officer with the U.S. Agency for International Development here, which oversees most of the non-oil related contracts let in Iraq, said the agency has an explicit "buy Iraqi" policy for the major American firms who are seeking subcontractors. "We have told them to make maximum practical use of that policy," a policy that works, he said.
Price pointed to the results of the principal contractor overseen by USAID, the San Francisco-based Bechtel Corp., as an example.
"As of Oct. 1," he said, "Bechtel had placed 102 subcontracts worth $54 million to Iraqi firms, and a lot more is planned."
Bechtel has promised to subcontract out 90 percent of the man-hours associated with its contract -- 70 percent to Iraqis, said company spokesman Howard Menaker. Bechtel's working relationship with the Iraqis has been "extremely positive," Menaker said.
Officials with the other major U.S. firm in Iraq, KBR -- formerly known as Kellogg Brown & Root, a subsidiary of Houston-based Halliburton Co. -- could not say how many Iraqi firms they have hired. But they noted that local companies, under KBR's supervision, are providing a host of services, from laundering uniforms to setting up Internet cafes for soldiers to use.
"KBR's first choice is to buy locally within Iraq," Patrice Mingo, a spokeswoman, said. "If we cannot find the materials or services needed to fulfill our client's request, we then look regionally, throughout the Middle East and beyond, until we are able to meet the request."
Price and other American contracting officials here show photographs of jobs well done by Iraqi companies to support their position that the process works most of the time. He said the huge American firms like KBR and Bechtel are subjected to the same scrutiny that government contractors face in the United States.
But charges of unfair contracting practices in Iraq are becoming an issue in Washington.
Waxman sent a letter to the Bush administration's Office of Management and Budget last week leveling charges of waste.
"For the past six months, I have been investigating the activities of Halliburton and Bechtel in Iraq," Waxman said. "A picture is now beginning to emerge of waste and gold-plating that is enriching Halliburton and Bechtel while costing the U.S. taxpayer millions and imperiling the goal of Iraqi reconstruction. The problem is this: Too much money appears to be going to Halliburton and Bechtel for too little work and too few opportunities for Iraqis."
Waxman quoted two members of the Iraqi Governing Council making the same charges as many businessmen here -- that Iraqis are cut out of the contracting process and American companies are overcharging.
Bechtel's Menaker called Waxman's allegations not only wrong but "an insult to the men and women working in an extremely challenging environment to rebuild Iraq."
A high-ranking official with the Coalition Provisional Authority in Baghdad, which has ultimate authority over money spent here, said contractors face stringent requirements to assure the funds are spent effectively, and that there was "free and open competition fair to everybody."
The official, who asked not to be named, said some of the problems claimed by Iraqis are not surprising.
"Iraqis say they are not getting these projects. But the reality is the Iraqi capacity to do these jobs isn't always there," she said. "This country had been badly mismanaged, and in some areas there is not much technical expertise."
Iraqis complained that they cannot figure out how to bid jobs, or that the bidding period is so short -- often just two or three days -- that they cannot make a bid on time.
"There is plenty of competition for these subcontracts, so some people are figuring it out," the official said. "We do operate quickly on small contracts. It is still a war zone, and we want to get things done."
Asked about the complaint by Iraqis that some work has been substandard, she said, "We have seen some shoddy workmanship, but it is the exception. In some cases we can withhold payment when that happens. And we have a `bad vendors' list to weed people out if they do bad work."
A Bechtel official said the company has been working with, among others, the Iraqi Federation of Contractors to determine firms' qualifications for performing the work. Company officials said they are confident the Iraqi firms they have hired have been qualified to perform the work.
Price said all work by contractors is scrutinized closely before being approved, and substandard work is ordered re-done.
But some Iraqi contractors are adamant that the process is unfair.
Iraqi businessman Farouk Al-Obaidi used American boxing slang to describe his company's efforts to get part of the millions of dollars in contracts being issued here by American companies.
"It is a pre-fixed fight," said the former top trade official who is now a vice president for Al Maimani Company, one of Iraq's biggest firms. He displayed proposals from KBR and other companies that showed a bidding process that opened and closed within two days, with sketchy details about the specific goods or services the contractors were to provide. Iraqis were used to seeing detailed bid proposals during the former regime.
When asked about those short turnaround times, KBR's Mingo said that "the timeframe of each bid is determined by urgency of the request from our client, the U.S. Army."
Abdul-Latif, the bidding engineer for Gurjai and Sons, said that "there is much information in the solicitations for bids that is inaccurate and misleading. Whoever prepared them was not a specialist."
KBR's Mingo said the company "provides as much information as possible in the bid requests. It is not to anyone's advantage to do otherwise."
In a country where there is no effective phone system, clarifying the details often requires a face-to-face meeting at the Baghdad Convention Center that can take days to arrange, the Iraqis said.
"It gives you the suspicion that they either don't care about technical considerations, or the matter was already decided before the request for quotations was issued," Abdul-Latif said.
Secrecy in the bidding process has been one of the biggest complaints of Iraqis. Those who win contracts are not routinely identified, Iraqis and Americans said. Those who lose out do not hear anything, including if their bid was rejected for a lower one or on some technical grounds, numerous Iraqi contractors said.
The Coalition Provisional Authority official defended the policy as necessary right now.
"The reality of the situation is that we are not posting winners because of security problems," she said. "And we simply don't have the time to inform all of the losers."
But even some Americans here see that policy as a problem. "The idea that we can't post the winners because they will be targeted to me is off the wall and has hurt our credibility," said one U.S. military officer who works with Iraqi contractors.
Perhaps the biggest complaint of Iraqis is what they call American cultural bias on the part of both the Coalition Provisional Authority and big U.S. companies.
International companies have come here to get a slice of the several billion dollars in subcontracts controlled by the U.S. government and large American firms. American arrogance has frozen Iraqi companies out, said businessman Rashid Alduleimi.
"We built hospitals, mosques and palaces before the war," Alduleimi said. "Since the war, we are unemployed. This is our country, and we want to be part of rebuilding it."
An official with the contracting authority said that in the haste to begin the massive process of rebuilding Iraq, sometimes Americans did turn to companies with which they had experience.
He described a contract he nearly issued to a large U.S. telecommunications company to construct Web sites that would have cost taxpayers $55,000.
"Normally it would have just happened and that would have been the end of it," the official said. "But an Iraqi convinced me he could do the work. He actually did a great job for $6,000."
One category of Iraqis who claim they cannot get business are the mega-contractors who flourished under Saddam Hussein's rule, companies like Mammalian. They are right, at least when it comes to American taxpayer-supported contracts, Price said.
"There is a policy that we don't do business with any of the former" members of the ruling Baath party, he said. "All of our contractors are mindful of this prohibition."
Some Iraqis said the policy was news to them. When one Iraqi businessman who had built palaces and government buildings for the former regime was told that the policy was likely precluding him from getting contracts, he said, "I can't believe that. Saddam was here for 35 years and to work you had to have contacts with the government. Otherwise, it was impossible. So why should we be punished?"
But if the U.S. government has the policy of cutting out the Baathists, the official said that in practice there was no effort to enforce it.
"In reality, we just don't have the ability to check everybody out that thoroughly," the official said.
Michael Hedges reported from Baghdad, David Ivanovich from Washington.
CONTRACTS FOR IRAQI PROJECTS
Administered by:
· The Coalition Provisional Authority, the lead U.S. agency, has overall responsibility.
· The Army Corps of Engineers oversees oil field work.
· The U.S. Agency for International Development oversees schools, airports and other infrastructure projects.
Two U.S. companies, Halliburton Co. and Bechtel Corp., dominate the private contracts to reconstruct Iraq's oil infrastructure, help rebuild Iraqi government and civic facilities and supply U.S. troops and government workers. The contracts are worth a total of $3.14 billion.
WHERE THE MONEY COMES FROM
· $1.7 billion in Iraqi assets frozen since the first Gulf War.
· $800 million confiscated from Saddam Hussein's coffers.
· Several hundred million dollars generated by the U.N. oil-for-food plan.
-- MICHAEL HEDGES
U.S. lawmaker calls for inquiry
By MICHAEL HEDGES and DAVID IVANOVICH
Copyright 2003 Houston Chronicle
BAGHDAD, Iraq -- The scramble to win U.S.-financed contracts to rebuild Iraq has been marred by misunderstandings and complaints from Iraqis that the American bidding process is bewildering and biased.
Many Iraqi businessmen feel shut out of the billion-dollar reconstruction of their country. While seeking subcontracts from huge American companies overseen by U.S. government agencies, the Iraqis claim that contracts have gone to foreign companies that charged many times more for the same work that they do.
After bids are solicited, the Iraqis say, contract winners are not announced and losers hear nothing, creating suspicions among the Iraqis that the process is rigged.
While acknowledging problems -- and noting that the work is done in a war zone, which creates the need for haste and a certain amount of secrecy for security reasons -- the Americans insist that Iraqi subcontractors are being hired and that the bidding process is impartial. Still, at least one member of Congress, Rep. Henry Waxman, D-Calif., has demanded that the Bush administration look into the process.
"Until now, all the investment in Iraq has been for foreigners, not Iraqis," said Talal Al Saab, a general contractor who had dozens of employees before the war. "The process of awarding the contracts is not fair to us. I can't put people to work, and that is hurting the stability of the country."
Ayad Abdul-Latif, a bidding engineer for Gurjai and Sons, General Contractors, showed a request for quotations that sought a contractor to remove waste oil. The proposal did not specify where the oil was, or how much there was of it. "How can you make a bid if you don't know the location?" he said.
Fadhil Ajina, an architectural engineer in Baghdad with an impressive résumé, said American companies refused to hire people such as himself to oversee the quality of work on projects like restoring schools and hospitals, and instead hired small Iraqi companies no one had heard of. The result, he said, was shoddy work.
"They forgot quality," he said. "They just wanted someone who could do the work in 30 or 40 days. I don't blame them, they were under pressure to get results fast. But repairing a school is not just painting the walls."
Iraqi businessmen are not only frustrated by the American process, but by corruption among their own countrymen as well. They claim that when American companies hire large Iraqi firms as major subcontractors, the Iraqi companies then demand a kickback called "the commission" from smaller firms in exchange for a piece of the job.
"For example, an Iraqi came to me and said I could get a job reconstructing 50 schools if I gave him $50,000," said Saad Aljanabi, a construction contractor.
Aljanabi said he did not pay the man, and could not prove it was a real bribe attempt. But he said he has not been able to find out from American officials who eventually won the contract.
But as with so much else in Iraq, U.S. officials involved in the contracting process see the situation differently than the Iraqis do.
Neil Price, the supervisory contracting officer with the U.S. Agency for International Development here, which oversees most of the non-oil related contracts let in Iraq, said the agency has an explicit "buy Iraqi" policy for the major American firms who are seeking subcontractors. "We have told them to make maximum practical use of that policy," a policy that works, he said.
Price pointed to the results of the principal contractor overseen by USAID, the San Francisco-based Bechtel Corp., as an example.
"As of Oct. 1," he said, "Bechtel had placed 102 subcontracts worth $54 million to Iraqi firms, and a lot more is planned."
Bechtel has promised to subcontract out 90 percent of the man-hours associated with its contract -- 70 percent to Iraqis, said company spokesman Howard Menaker. Bechtel's working relationship with the Iraqis has been "extremely positive," Menaker said.
Officials with the other major U.S. firm in Iraq, KBR -- formerly known as Kellogg Brown & Root, a subsidiary of Houston-based Halliburton Co. -- could not say how many Iraqi firms they have hired. But they noted that local companies, under KBR's supervision, are providing a host of services, from laundering uniforms to setting up Internet cafes for soldiers to use.
"KBR's first choice is to buy locally within Iraq," Patrice Mingo, a spokeswoman, said. "If we cannot find the materials or services needed to fulfill our client's request, we then look regionally, throughout the Middle East and beyond, until we are able to meet the request."
Price and other American contracting officials here show photographs of jobs well done by Iraqi companies to support their position that the process works most of the time. He said the huge American firms like KBR and Bechtel are subjected to the same scrutiny that government contractors face in the United States.
But charges of unfair contracting practices in Iraq are becoming an issue in Washington.
Waxman sent a letter to the Bush administration's Office of Management and Budget last week leveling charges of waste.
"For the past six months, I have been investigating the activities of Halliburton and Bechtel in Iraq," Waxman said. "A picture is now beginning to emerge of waste and gold-plating that is enriching Halliburton and Bechtel while costing the U.S. taxpayer millions and imperiling the goal of Iraqi reconstruction. The problem is this: Too much money appears to be going to Halliburton and Bechtel for too little work and too few opportunities for Iraqis."
Waxman quoted two members of the Iraqi Governing Council making the same charges as many businessmen here -- that Iraqis are cut out of the contracting process and American companies are overcharging.
Bechtel's Menaker called Waxman's allegations not only wrong but "an insult to the men and women working in an extremely challenging environment to rebuild Iraq."
A high-ranking official with the Coalition Provisional Authority in Baghdad, which has ultimate authority over money spent here, said contractors face stringent requirements to assure the funds are spent effectively, and that there was "free and open competition fair to everybody."
The official, who asked not to be named, said some of the problems claimed by Iraqis are not surprising.
"Iraqis say they are not getting these projects. But the reality is the Iraqi capacity to do these jobs isn't always there," she said. "This country had been badly mismanaged, and in some areas there is not much technical expertise."
Iraqis complained that they cannot figure out how to bid jobs, or that the bidding period is so short -- often just two or three days -- that they cannot make a bid on time.
"There is plenty of competition for these subcontracts, so some people are figuring it out," the official said. "We do operate quickly on small contracts. It is still a war zone, and we want to get things done."
Asked about the complaint by Iraqis that some work has been substandard, she said, "We have seen some shoddy workmanship, but it is the exception. In some cases we can withhold payment when that happens. And we have a `bad vendors' list to weed people out if they do bad work."
A Bechtel official said the company has been working with, among others, the Iraqi Federation of Contractors to determine firms' qualifications for performing the work. Company officials said they are confident the Iraqi firms they have hired have been qualified to perform the work.
Price said all work by contractors is scrutinized closely before being approved, and substandard work is ordered re-done.
But some Iraqi contractors are adamant that the process is unfair.
Iraqi businessman Farouk Al-Obaidi used American boxing slang to describe his company's efforts to get part of the millions of dollars in contracts being issued here by American companies.
"It is a pre-fixed fight," said the former top trade official who is now a vice president for Al Maimani Company, one of Iraq's biggest firms. He displayed proposals from KBR and other companies that showed a bidding process that opened and closed within two days, with sketchy details about the specific goods or services the contractors were to provide. Iraqis were used to seeing detailed bid proposals during the former regime.
When asked about those short turnaround times, KBR's Mingo said that "the timeframe of each bid is determined by urgency of the request from our client, the U.S. Army."
Abdul-Latif, the bidding engineer for Gurjai and Sons, said that "there is much information in the solicitations for bids that is inaccurate and misleading. Whoever prepared them was not a specialist."
KBR's Mingo said the company "provides as much information as possible in the bid requests. It is not to anyone's advantage to do otherwise."
In a country where there is no effective phone system, clarifying the details often requires a face-to-face meeting at the Baghdad Convention Center that can take days to arrange, the Iraqis said.
"It gives you the suspicion that they either don't care about technical considerations, or the matter was already decided before the request for quotations was issued," Abdul-Latif said.
Secrecy in the bidding process has been one of the biggest complaints of Iraqis. Those who win contracts are not routinely identified, Iraqis and Americans said. Those who lose out do not hear anything, including if their bid was rejected for a lower one or on some technical grounds, numerous Iraqi contractors said.
The Coalition Provisional Authority official defended the policy as necessary right now.
"The reality of the situation is that we are not posting winners because of security problems," she said. "And we simply don't have the time to inform all of the losers."
But even some Americans here see that policy as a problem. "The idea that we can't post the winners because they will be targeted to me is off the wall and has hurt our credibility," said one U.S. military officer who works with Iraqi contractors.
Perhaps the biggest complaint of Iraqis is what they call American cultural bias on the part of both the Coalition Provisional Authority and big U.S. companies.
International companies have come here to get a slice of the several billion dollars in subcontracts controlled by the U.S. government and large American firms. American arrogance has frozen Iraqi companies out, said businessman Rashid Alduleimi.
"We built hospitals, mosques and palaces before the war," Alduleimi said. "Since the war, we are unemployed. This is our country, and we want to be part of rebuilding it."
An official with the contracting authority said that in the haste to begin the massive process of rebuilding Iraq, sometimes Americans did turn to companies with which they had experience.
He described a contract he nearly issued to a large U.S. telecommunications company to construct Web sites that would have cost taxpayers $55,000.
"Normally it would have just happened and that would have been the end of it," the official said. "But an Iraqi convinced me he could do the work. He actually did a great job for $6,000."
One category of Iraqis who claim they cannot get business are the mega-contractors who flourished under Saddam Hussein's rule, companies like Mammalian. They are right, at least when it comes to American taxpayer-supported contracts, Price said.
"There is a policy that we don't do business with any of the former" members of the ruling Baath party, he said. "All of our contractors are mindful of this prohibition."
Some Iraqis said the policy was news to them. When one Iraqi businessman who had built palaces and government buildings for the former regime was told that the policy was likely precluding him from getting contracts, he said, "I can't believe that. Saddam was here for 35 years and to work you had to have contacts with the government. Otherwise, it was impossible. So why should we be punished?"
But if the U.S. government has the policy of cutting out the Baathists, the official said that in practice there was no effort to enforce it.
"In reality, we just don't have the ability to check everybody out that thoroughly," the official said.
Michael Hedges reported from Baghdad, David Ivanovich from Washington.
CONTRACTS FOR IRAQI PROJECTS
Administered by:
· The Coalition Provisional Authority, the lead U.S. agency, has overall responsibility.
· The Army Corps of Engineers oversees oil field work.
· The U.S. Agency for International Development oversees schools, airports and other infrastructure projects.
Two U.S. companies, Halliburton Co. and Bechtel Corp., dominate the private contracts to reconstruct Iraq's oil infrastructure, help rebuild Iraqi government and civic facilities and supply U.S. troops and government workers. The contracts are worth a total of $3.14 billion.
WHERE THE MONEY COMES FROM
· $1.7 billion in Iraqi assets frozen since the first Gulf War.
· $800 million confiscated from Saddam Hussein's coffers.
· Several hundred million dollars generated by the U.N. oil-for-food plan.
-- MICHAEL HEDGES
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