U.S. Contractors Reap the Windfalls of Post-war Reconstruction

By The Center for Public Integrity*

WASHINGTON, October 30, 2003 More than 70 American companies and individuals have won up to $8 billion in contracts for work in postwar Iraq and Afghanistan over the last two years, according to a new study by the Center for Public Integrity. Those companies donated more money to the presidential campaigns of George W. Busha little over $500,000than to any other politician over the last dozen years, the Center found.

Kellogg, Brown & Root, the subsidiary of Halliburtonwhich Vice President Dick Cheney led prior to being chosen as Bush's running mate in August 2000was the top recipient of federal contracts for the two countries, with more than $2.3 billion awarded to the company. Bechtel Group, a major government contractor with similarly high-ranking ties, was second at around $1.03 billion.

However, dozens of lower-profile, but well-connected, companies shared in the reconstruction bounty. Their tasks ranged from rebuilding Iraq's government, police, military and media to providing translators for use in interrogations and psychological operations. There are even contractors to evaluate the contractors.

Nearly 60 percent of the companies had employees or board members who either served in or had close ties to the executive branch for Republican and Democratic administrations, for members of Congress of both parties, or at the highest levels of the military.

The results of the Center's six-month investigation provide the most comprehensive list to date of American contractors in the two nations that were attacked in Washington's war on terror. Based on the findings, it did not appear that any one government agency knew the total number of contractors or what they were doing. Congressional sources said they hoped such a full picture would emerge from the General Accounting Office, which has begun investigating the postwar contracting process amid allegations of fraud and cronyism.

The Center's investigation focused on the three agencies that awarded most of the Iraq and Afghanistan contracts in 2002 and 2003the Pentagon, the State Department and the U.S. Agency for International Development. It found that nearly every one of the 10 largest contracts awarded for Iraq and Afghanistan went to companies employing former high-ranking government officials or individuals with close ties to those agencies or Congress.

In addition, those top 10 contractors were established political donors, contributing nearly $11 million to national political parties, candidates and political action committees since 1990, according to an analysis of campaign finance records.

Indeed, most of the companies that won contracts in Iraq and Afghanistan were political players. According to the Center's analysis, the companies, their political action committees and their employees contributed a total of nearly $49 million to national political campaigns and parties since 1990. Donations to Republican Party committeesthe Republican National Committee, the Republican Senatorial Campaign Committee and the National Republican Congressional Committeeoutpaced those to Democratic committees, $12.7 million to $7.1 million. Among individual candidates, President George Bush received more money from these companies than any other, a little over $500,000.

The Center's investigation found that 14 of the contractors were awarded U.S. government work in both Iraq and Afghanistan. Combined, those companies gave nearly $23 million in political contributions since 1990, and 13 employ former government officials or have close ties to various agencies and departments.

Although Afghanistan was once ground zero in Washington's war on terrorism, spending on Iraq was more than double that on Afghanistan. According to the Center's investigation, which examined contracts awarded in 2002 through September 2003, at least $5.7 billion in government funding was slated for U.S. contractors in Iraq, compared to nearly $2.7 billion for Afghanistan. Osama bin Laden's al Qaeda network, blamed for the Sept. 11, 2001, attacks on the United States, had been based in Afghanistan, and prior to the March 2003 war on Iraq, U.S. officials had said that a democratic Afghanistan was central to winning the war on terror.

The Center's findings are based, in part, on 73 Freedom of Information Act requests and appeals to USAID, the Pentagon and its various uniformed services and the State Department, as well as an analysis of the General Services Administration database of contracts from 1990 through fiscal year 2002more than 7 million federal contract actions, in all.

Response to the Center's FOIA requests was sporadic, at best, and on Oct. 29, the Center filed suit in the U.S. District Court in Washington, D.C., against the State Department and the Army after both agencies failed to respond fully to its request for information as outlined under FOIA law.

For example, media accounts have noted that the State Department has a contract with DynCorp for work in Iraq worth at least $50 million, which reportedly could grow in value to as much as $800 million under the administration's new spending request for Iraq. The Department of State did not respond to Center requests for information about this or any of its other contracts in Iraq or Afghanistan.

The U.S. Army Corps of Engineers awarded a contract to the Halliburton subsidiary Kellogg, Brown & Root, potentially worth billions under an omnibus military contract known as "indefinite quantity-indefinite delivery," which is one of the largest of its kind in U.S. history. Although the Pentagon released one KBR "task order," or work assignment, to the Center, there are more than 30 such orders for Iraq. (See Outsourcing Government sidebar.)

Because of inconsistent and scarce information, the total value of contracts awarded for reconstruction work in Iraq and Afghanistan may be greater than what is publicly known. The Center found that there was no uniformity across the government in how contract values were reported. For example, the amount listed for an individual contract either represented only what had been paid to date on a multiyear contract, or a minimum and maximum dollar range of the contract, or, in some instances, a single figure, without any specification as to whether it represented a first payment, a first-year total, or a multiyear total. In some instances, the Center could determine nothing about what a particular contract cost or entailed because neither the company nor the government agency responsible for it would divulge that information.

Contractor confusion

The difficulty in obtaining contract amounts and the contradictory information coming from within government departments raise questions about management and oversight of the reconstruction effort. Although USAID has said that "to ensure that U.S. tax dollars are utilized efficiently and effectively, USAID is providing a transparent monitoring and evaluation system to ensure that contractors are meeting their goals and staying on schedule," the Center's investigation suggested otherwise.

For example, in a list of contracts initially provided to the Center under FOIA, both USAID and the Pentagon omitted the largest contracts they had awarded in Iraqto Bechtel and to Halliburton's KBR subsidiary. Also omitted from the Pentagon's list were major defense contractors such as Fluor, Washington Group International and Perini Corporation, each of which stands to earn up to $500 million for its Pentagon work in Iraq, Afghanistan and other countries. Combined, the three companies and their subsidiaries have won more than $11 billion dollars in U.S. government contracts from 1990 through fiscal year 2002. (See contractor rankings.)

Contracts awarded by USAID to Chemonics International Inc., a private, for-profit aid company based in Washington, D.C., provide a textbook study in the apparent confusion surrounding the contracting process.

According to information provided by USAID under a Freedom of Information request, Chemonics was contracted to work in Afghanistan for just over $600 million. That total would rank Chemonics third among all U.S. contractors in Iraq and Afghanistan, behind only Halliburton and Bechtel. However, the company disputed that total when contacted, at first insisting it had three contracts with USAID worth just $133.9 million, then changing its figures a day later to say that one multiyear contract it had originally put at nearly $1.2 million actually had a potential worth of $35 million for work in Afghanistan and several other countries.

Getting clarification of the numbers from USAID was difficult. "I dont know where the FOIA office got that information," said one USAID press officer. Chemonics refused to release copies of its contracts, and a Center FOIA request for the contracts is pending. After several queries, the FOIA office told the Center that the contract it had listed as being worth $600 million was actually worth between $599,000 and $1.2 million, which was still inconsistent with the numbers Chemonics provided.

"We dont dispute it," Chemonics spokesperson Denise Felix told the Center when asked about the USAID number. "It is not accurate for us." In general, contract amounts provided under FOIA varied widely; often the value given by an agency was for the first year's work only, not the designated total on a multiyear contract. When the Center obtained copies of contracts, it became clear that at least some departments calculated the total cost of a contract by tallying all its option years. (See FOIA sidebar.)

In other instances, contract lists provided by the agencies did not correspond with information on the agencies' Web sites or with public announcements by companies receiving the contracts. Often, the agency was at a loss to explain these discrepancies. In addition, when asked for copies of contracts which USAID told the Center it had awarded, agency officials responded that it would take an indeterminate amount of time to produce some of them because they would have to be retrieved from global field offices.

Even when FOIA requests were granted, key information about government contracts often was redacted, or blacked out. For example, the Pentagon provided the Center copies of seven contracts awarded to Science Applications International Corporation for work in Iraq. The total contract value was omitted, although some unit pricingtypically redacted under a rule that gives companies a right to oppose FOIA requests about their government contractswas left in. That same rule was cited by one Pentagon FOIA officer as justification why the department was not releasing a Raytheon Aerospace contract worth more than $7 million. Raytheon Aerospace, along with its affiliated companies, was the 11thranked government contractor among companies with contracts in Iraq and Afghanistan, earning $2.7 billion since 1990, according to the Center's analysis.

SAIC officials refused to discuss their contracts with the Center, directing all calls to the Pentagon press office, which did not answer Center queries. However, a congressional source, speaking on condition of anonymity, told the Center that one SAIC media contract in Iraq likely would be worth more than $50 million by the end of 2003. The total value of SAIC's contracts could not be determined.

Since February 2003, SAICthe country's largest employee-owned research and engineering companyhas been in charge of the Iraqi Reconstruction and Development Council, a Pentagon-sanctioned group of Iraqis that is effectively functioning as the country's temporary government. The senior members of IRDC hold positions at each of 23 Iraqi ministries, where they work closely with U.S. and British officials, including L. Paul Bremer, head of the Coalition Provisional Authority. The Council's official task is to rebuild the structures of a government that are expected eventually to be handed over to the new Iraqi authority. Members of the IRDC are officially employed by SAIC, according to the contracts.

SAIC has also been hired to rebuild Iraq's mass media, including television stations, radio stations and newspapers. SAIC, which is not generally known for its media expertise, runs the "Voice of the New Iraq," the radio station established in April 2003 at Umm Qasr with U.S. government funds. (For more information see SAIC Reconstruction Contracts and company profile.)

Revolving doors

In many ways, SAIC is typical of the kinds of American contractors working in Iraq and Afghanistan. Among companies with contracts in the two countries, SAIC was the third-largest recipient of U.S. government contracts over the last 12 years; the company, its employees and PAC contributed $4.7 million to national political campaigns, the Center's investigation found.

SAIC's largest customer is the U.S. government, which accounts for 69 percent of its business, and its company roster is a revolving door of government-corporate influences.

David Kay, the former U.N. weapons inspector who was hired by the CIA to track down weapons of mass destruction in Iraq, is a former vice president of SAIC. Kay left SAIC, where he oversaw homeland security and counterterrorism work, in October 2002.

Christopher "Ryan" Henry left SAIC, where he was vice president for strategic assessment and development, in February 2003 to become principal deputy undersecretary of defense for policy. Henry now works for the office overseeing his former employer, directly under Douglas J. Feith, the undersecretary of defense for policy who has been deeply involved in postwar planning.

SAIC's Executive Vice President for Federal Business and Director Duane P. Andrews served as assistant defense secretary from 1989 to 1993, when he joined SAIC. Board member W.A. Downing served as deputy assistant director for international counter-terrorism initiatives on the National Security Council and joined SAIC after retiring as an Army general in 1996. Bobby Ray Inman, a board member until October 2003, is a retired U.S. Navy admiral who once directed the National Security Agency and served as deputy director of central intelligence. Inman is also a member of the board of directors of Fluor, another contractor in Iraq and Afghanistan.

Chemonics International, which according to information provided by USAID's FOIA office holds the third-richest contract of all American companies in Iraq and Afghanistan, offers another interesting case-in-point. Founded by a former State Department foreign service officer, the company receives 90 percent of its business from USAID. Scott Spangler, the company's principal owner with 52 percent of the company's stock, was a senior USAID official during the first Bush administration. While at USAID, Spangler served as assistant administrator for the Africa Bureau, associate administrator for operations and acting administrator. Spangler became principal owner of Chemonics in March 1999 and chaired the board until April 2002. His wife, Jean Spangler, is also on Chemonics' board of directors. Together, the Spanglers have contributed $98,460 to Republican Party causes since 1990, according to the Center's campaign finance records analysis.

Perini Corporation, working in Iraq and Afghanistan on contracts worth up to $525 million, is owned by a group of investors that includes Richard Blum, husband of Sen. Dianne Feinstein, a Democrat from California who serves on the Appropriations Committee and the Select Committee on Intelligence.

Sullivan Haave Associates Inc.identified by the Pentagon as a contractor, though the company says it was a subcontractor to SAICwas founded by Carol A. Haave, currently the deputy assistant secretary of defense for security and information operations. (See Small Company sidebar.)

Another contractor with interesting ties is the Center for Afghanistan Studies at the University of Nebraska, Omaha, which was established in 1972 and claims to be the only institutional base in the United States exclusively concerned with Afghan affairs. The center's director, Thomas E. Gouttierre, is an old friend of Zalmay Khalilzad, President's Bush's nominee as ambassador to Afghanistan and a former paid adviser to Unocal. The oil company, which until 1998 was working on a plan to construct trans-Afghan natural gas and oil pipelines, has funded the CAS' work in Afghanistan and hosted members of the Taliban on visits to the United States. The CAS also reportedly has longstanding ties to Washington policymakers and, especially, the intelligence community.

In January 2002, USAID awarded the Center for Afghanistan Studies $6.5 million to provide books and training for Afghanistan's interim government to resume schooling. However, critics charged that the books, written in the 1980s, contained Islamic material and verses from the Koran in violation of the U.S. Constitution's separation of church and state. That followed earlier criticism of the CAS' ties to members of the Taliban leadership during its previous U.S. government contracts.

In January 2003, the CAS, which had been involved in Afghanistan education projects since 1973, lost the USAID contract for Afghan educational textbooks and teacher training to Creative Associates International Inc., a private for-profit aid company based in Washington, D.C. Though the CAS did not get a new contract, it received a no-cost extension of its 2002 contract from USAID to continue training teachers from its office in Afghanistan.

Raheem Yaseer, the CAS assistant director and a former Kabul University professor, said efficiency and quality were secondary to politics in the process of selecting companies and organizations to work in Afghanistan.

"It depends on who knows who in the administration, USAID and the State Department," Yaseer said in an interview. "Universities try their best to recruit professionals, but these Belt[way] bandits just grab anybody that comes in handy."

In addition to its USAID contract for educational reform in Afghanistan, worth at least $60 million, Creative was awarded a USAID contract in March 2003 for educational development work in Iraq. That contract, which may be extended by two years, is meant to cover everything from desks and blackboards to textbooks, curriculum reform, academic standards and teacher training and is worth up to $157 million. Creative was the 11th largest recipient of government-funded contracts in Iraq and Afghanistan, according to the Center's analysis.

Four months before the Iraq contract was awarded, USAID hosted a roundtable discussion of Iraq's educational system, which a Creative representative attended. It was the only company later invited to bid on the contract present at that meeting. Although Creative refused to answer Center questions about the meeting, USAID identified its representative as Frank Dall and said he was invited not on behalf of the company but because he was "literally the only available education authority to have worked directly with the Saddam regime." USAID noted Dall's previous work in the Middle East with UNICEF and UNESCO, but did not mention that Dall was a former USAID employee, having served as the agency's education director for the Middle East.

USAID's comments came in response to an internal inspector general report, commissioned after questions arose about possible impropriety surrounding Creative's selection as a contractor in Iraq. The other companies invited to bid were given only two weeks notice to submit their bids.

"The documentation is clear that only one of the five contractors that were subsequently invited by USAID to bid on the contract participated in an initial roundtable discussion," a June 2003 USAID memorandum detailing the IG's findings said. "In addition, we conclude that USAID Bureau officials did not adhere to the guidance on practical steps to avoid organizational conflicts of interest."

Another onetime senior USAID official is also on the Creative staff. In July 2002, the agency's former chief of staff Richard L. McCall Jr. was selected to direct Creative's Communities in Transition division. Before joining USAID, McCall was a senior policy adviser to the deputy secretary of state and spent many years working on Capitol Hill, including as a staffer for the Senate Foreign Relations Committee and the Senate Democratic Policy Committee.

Close ties

The Center's investigation also found that many contractors had close working relationships with one another. For example:

• Creative International subcontracted three of the four other companies that were invited to bid on the USAID contract in Iraq, including Research Triangle Institute and DevTech Systems Inc. Creative is also a subcontractor to Research Triangle Institute on RTI's Iraq contract.
• In addition to its Afghanistan contracts, Chemonics is a subcontractor in Iraq to Research Triangle Institute and BearingPoint, which also has a contract in Afghanistan.
• Vinnell Corporationwhich became the first American private military company in 1975 with its contract to train the Saudi National Guardis using SAIC and Military Professional Resources Inc. to help train the New Iraqi Army. SAIC and MPRI separately also have contracts in Iraq.

The Center did not examine subcontractors in any systematic way, and it was not clear how much of the reconstruction business they held. USAID Administrator Andrew Natsios has said that more than 50 percent of the money that goes to contractors actually ends up with subcontractors.

In addition to contracts awarded by the three departments that were a focus of the Center for Public Integrity's investigation, a handful of other major American companies won contracts for work in Iraq, including ChevronTexaco, JPMorgan and MCI/WorldCom. (See ChevronTexaco and JPMorgan sidebar.)

ChevronTexaco, a major U.S. government contractor and political party donor, joined five other international oil companies selected by the Iraqi State Oil Marketing Organization to market Iraqi oil. The expected revenue of $300 million from the sale of oil will be controlled by the U.S. government for use in rebuilding Iraq. Including Chevron, there were only two contracts for oil-related work among the dozens reviewed by the Center.

JPMorgan, the nation's second-largest bank, which was implicated in the Enron scandal, has been contracted by the Coalition Provisional Authority to run a consortium of 13 banks from 13 countries that will constitute the Trade Bank of Iraq. Bank consortium members are not expected to earn much revenue initially, but banking publications report the real windfalls will come once Iraq's oil production resumes full capacity and anticipated billions of dollars flow through the Trade Bank for financing large development projects.

MCI, formerly WorldCom, was hired by the Pentagon to build a wireless phone network for officials and aid workers in the Baghdad area. MCI's reconstruction activities in Iraq were not disclosed in documents the Defense Department provided to the Center under a Freedom of Information Act request. However, an MCI spokesperson said the Pentagon-led Coalition Provisional Authority awarded the contract to MCI in late May 2003. The contract was part of a short-term communications plan costing the Pentagon approximately $45 million. The MCI spokesperson would say only that the company's contract amounted to less than $20 million. When it was still named WorldCom, the company paid a $500 million fine to the Securities and Exchange Commission for overstating its cash flow by nearly $4 billion, and it was temporarily banned from receiving federal contracts.

Seeking oversight

In April 2003, the General Accounting Office, the investigative arm of Congress, announced it would launch a broad investigation into methods used to award contracts to rebuild Iraq. The awarding of no-bid or closed-bid contracts in Iraq to Halliburton and Bechtel prompted the calls for investigation, although, as the Center investigation found, a majority of contractors in Iraq and Afghanistan have significant government ties.

"There is growing evidence that favored contractors like Halliburton and Bechtel are getting sweetheart deals that are costing the taxpayer a bundle but delivering scant results," said Rep. Henry Waxman, a California Democrat and the administration's most vocal critic on the contracting process.

Vice President Dick Cheney is a former defense secretary and former CEO of Halliburton and still receives deferred compensation from the company. Bechtel's ranks of executives and board members include former Secretary of State George Shultz, former State Department official Charles Redman and former Marine four-star Gen. Jack Sheehan, who served as NATO's Supreme Allied Commander for the Atlantic before his retirement in 1997 and now sits on the Defense Policy Board, a Pentagon-appointed body that advises on defense issues.

GAO sources told the Center that the agency is conducting two separate probes of contracts awarded for work in Iraq and Afghanistan. The first covers all civilian contracts for Iraq reconstruction involving appropriated funds and stemmed from requests by two Democratic congressmen, who complained of cronyism in the contracting process. That report is expected to be completed in late 2003 or early 2004. A second probe involves a handful of multibillion-dollar, multiyear military contracts that cover work in both countries. The primary focus of that probe will be the Army's LOGCAP (Logistics Civil Augmentation Program) contract held by Kellogg, Brown & Root and one held by Johnson Controls Co., which created Readiness Management Support LC to manage AFCAP, the Air Force Contract Augmentation Program. GAO officials estimate the second probe will take about a year to complete.

Many of the companies initially selected for work in Iraq and Afghanistan were awarded contracts because they had the necessary security clearance or established contracting reputations with the government departments and agencies assigning the work, officials have said. But U.S. lawmakers have been pressing for a more transparent process in the next round of reconstruction contract awards.

Waxman, in an Oct. 15 statement, said "the root cause of these problems is the administration's insistence on virtually absolute secrecy about how it is spending the taxpayer's money."

Acknowledging a lack of general oversight in the previous contracting process, the government has announced that it will consolidate all future contracts under a new Baghdad-based office as of November. The office is to be set up under the Coalition Provisional Authority and headed by a retired U.S. Navy admiral, David Nash, reporting directly to CPA head L. Paul Bremer.

"Now the whole contracting procedure is confusing," John Shaw, deputy undersecretary of defense for international security, told a London conference in mid-October, where he announced the new office. "There's been many complaints. This new procedure we hope is going to bring greater accountability and transparency."

Kevin Baron, Maud Beelman, Neil Gordon, Laura Peterson, Aron Pilhofer, Daniel Politi, André Verlöy, Bob Williams and Brooke Williams contributed to this report, which was written by Ms. Beelman.

© 2003, The Center for Public Integrity. All rights reserved.