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Last Updated: Wednesday, 22 October, 2003, 22:07 GMT 23:07 UK
Washington's reconstruction battle

By Steve Schifferes
BBC News Online economics reporter

Angry Shia demonstrate outside the CPA building
Security is still tight in Iraq

Even before the battle raged in the field, the struggle over who was to run the reconstruction of Iraq was being waged in Washington.

And the controversy over which companies received contracts to rebuild the country has damaged the administration.

It was only shortly before the outbreak of hostilities that the question of who would run post-war Iraq was resolved, with the establishment of the Pentagon's office of civilian reconstruction, despite strenuous objections from the State Department, which traditionally oversees such efforts.

But soon after major combat operations ended, it became clear that the Pentagon had based its planning for reconstruction on the last Gulf war.

We have been led into a pre-emptive war that has left us isolated from our allies ... and holding the bag financially, militarily and politically for the reconstruction of Iraq
Representative David Obey, Democrat, Wisconsin
The first head of the reconstruction team, retired general Jay Garner, had led the US efforts in Northern Iraq in 1991.

He had stockpiled food, tents, and medical supplies, fearing the same humanitarian crisis as when Kurdish refugees fled into the mountains after the failure of the 1991 uprising against Saddam Hussein.

And the US employed teams of wildcat oilfield specialists to cap the oil well fires like those in Kuwait in 1991 - but which were on a far more modest scale in Iraq.


But relatively little had been done to prepare for the return to civilian administration and ensure security - like training the police, re-establishing the legal system, and running government ministries - despite numerous warnings by independent experts.

And it soon became clear that the scale of the rebuilding task had been much under-estimated.

It was only in September that the Bush administration presented its request to Congress for $20bn to rebuild Iraq, after hopes that oil revenues and contributions from other countries would pay most of the costs were dashed, while the World Bank said that another $35bn was needed for reconstruction.

A guide to living conditions and the reconstruction effort in Iraq

That request inaugurated a political firestorm, in which many Democrats and some fiscally Conservative Republicans felt free to criticise the government as profligate with spending in Iraq while being parsimonious at home.

"We have been led into a pre-emptive war that has left us isolated from our allies ... and holding the bag financially, militarily and politically for the reconstruction of Iraq," said Representative David Obey of Wisconsin, a top Democrat on the budget committee.

Loans not grants

Some Senate Republicans led a move to convert part of the reconstruction request into a loan, despite the resistance of the Bush administration.

"My single highest priority as a member of Congress is to ensure we balance the budget," said Representative John Culbertson, a Texas Republican.

At the same time the Bush administration also restructured control over Iraqi reconstruction, removing ultimate authority from the Pentagon and creating an Iraqi Stabilisation Group led by the National Security Advisor, Condoleezza Rice.

But it is yet unclear as to how much authority Ms Rice will be able to wield over the warring fiefdoms of the State and Defence Departments.

Contracts 'cronyism'

Fuelling the political battle has been the controversy over how the Bush administration awarded the contracts to private construction firms for rebuilding Iraq.

Critics such as the New York Times newspaper, in an editorial, accused the government of "cronyism", by awarding contracts to firms with close connections to key figures in the administration.

The IGC is situated within the CPA's ring of steel and concrete known as the Green Zone

The Pentagon - which has continually sought freedom from Congressional restraint over the details of its spending plans - also sought freedom to award contracts on an "emergency" basis without full tendering.

The most controversial contract went to Kellogg, Brown, and Root (KBR), a subsidiary of the giant Halliburton oil services company that Vice-President Dick Cheney had been closely associated with.

In March, KBR was awarded an "indefinite delivery/indefinite quantity" contract to carry about repairs to Iraq's oil infrastructure "as directed by the Army Corps of Engineers" without tendering.

KBR had previously developed a plan for dealing with possible oil well fires for the Defence Department, and was given the emergency contract on the basis that "it was the only contractor that could commence implementing the complex contingency plan on extremely short notice," according to a statement on its website.

Bechtel's billion

The other major contract, for rebuilding Iraq's physical infrastructure, including roads, ports, power stations, telephones, and water supply, was awarded in April to another giant construction company, Bechtel, for $680m (recently increased to $1bn), after a limited and secret bidding process involving just six American firms.

Bechtel has close connections with George Schultz who served as Secretary of State in the first Bush administration.

The company vehemently denies it used its connections to win the contact, however, and has said it plans to subcontract out 90% of the work - mainly to local Iraqi firms in an open bidding process.

However, the process has made it difficult for companies from other developed countries to win contracts and is widely perceived as unfair.

Now, with other countries set to agree to make major contributions to the reconstruction bill, it appears that the US may be forced to set up a separate reconstruction fund administered by the UN, which will give non-US companies a greater role in the bidding process.

And the US Congress has written into the legislation authorising further spending on reconstruction a requirement for greater transparency in contracting.

'Gold-plated' contracts

A second criticism of the reconstruction process is that the US contractors are over-charging the government for supplies.

This has led the US Congress to cut back on the administration's request for funds for reconstruction by over $1.4bn, eliminating such items as $50,000 garbage trucks and a $300m prison.

KBR has also come under fire for over-charged on the supply of fuel to Iraq, with gasoline priced at $1.59 per gallon, not far below the US price.

The company says that the costs of ensuring a secure supply and transporting it to Iraq explain the high figure, and it only gets a 2% fee above costs.

It says that the criticism is "an insult to the KBR employees who are performing this dangerous mission to help bring fuel to the people of Iraq."

But people like Senator Edward Kennedy, a prominent Democratic war critic, argue that " Iraqis can do things themselves for a good deal less cost which would save the (US) taxpayers their resources" and says that these companies have a history of over-charging.

Whatever the merits of the argument, the increasingly loud debate is reducing the credibility of US efforts to rebuild Iraq in the outside world.

There is little doubt that actions to correct that impression are important if the reconstruction effort is to gain more domestic and international support.

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