Outsourcing Iraq

By Shane Harris

July 1, 2004

The reconstruction of Iraq has spawned a sprawling tangle of contracts let by many agencies, often with little oversight.

In early 2003, Jay Garner quietly and quickly began building a nation.

Garner, a retired Army general, had led the rescue of hundreds of thousands of Kurds who fled into the mountains of Northern Iraq after a failed revolt against Saddam Hussein in 1991. In January 2003, he took the helm of the Office of Reconstruction and Humanitarian Assistance (ORHA). Along with Pentagon planners and staffers recruited from agencies across the government, Garner prepared for a colossal reconstruction effort to follow a new campaign against Hussein.

In the 12 years since Garner left Iraq, he had watched the country go to hell: Agricultural production had been cut nearly in half, infant mortality rates were among the highest in the Middle East, and the electricity grid and sewage systems had been so neglected that large portions of the population lived in the dark and bathed in waste. "It was not a good place to live," Garner said in an interview in early 2004. In the wake of what was expected to be certain military victory, Iraq had to be rescued and rebuilt quickly so its people would view the United States as a helpful force rather than an occupying army. "We were going to . . . bring in contractor teams, as fast we could do it," he said. Contractors would handle everything, from training a new Iraqi army to employing locals in construction projects to rewriting Iraq's commercial code. It was an outsourcing unprecedented in size, scope and ambition.

In the weeks before and just after the U.S. invasion in March 2003, Garner gathered his team. Members included Garner's colleagues and co-workers, brought aboard fast and with little regard for the niceties of contracting rules. After all, war was imminent. Calls were made; experts were requested by name and hired using whatever existing contracts promised speed and reliability.

Those early, unorthodox methods, born helter-skelter in the chaos of war, set the pattern for the circuitous and rule-bending maze of contracts that since has grown up in Iraq. Today, the U.S.-led reconstruction is in the hands of a conglomeration of overlapping contractors, government agencies and organizations whose status, authority and accountability all are under debate. Tens of billions of dollars change hands, but oversight is limited and regulations often are ignored. The blurred lines of authority and accountability have brought conflict-of-interest charges, increasing legal scrutiny and concern that the reconstruction juggernaut may careen out of control.

The Need for Speed

From the beginning, the reconstruction was run on the fly. Garner wanted people he trusted, so he called first upon old friends. In January 2003, he placed a phone call to retired Col. Richard Naab, the former commander of U.S. forces in Northern Iraq from 1991 to 1992. Naab had worked with Garner then, and now Garner wanted him to help run Iraq's Northern Region after the invasion. Like Garner, Naab had stayed in touch with Kurdish officials since 1992. Kurdistan had grown into an autonomous, marginally democratic region. Naab met with Kurdish leaders on their trips to Washington. He had their home phone numbers. He even called some of them before the U.S. invasion to tell them ORHA was on its way.

From ORHA posts in the north, center and south of Iraq, teams would dispatch reconstruction contractors and employ locals and decommissioned troops. When Garner called, Naab was working for Unisys Corp., a large government technology contractor. At the time, Garner was president of SY Coleman, a weapons and technology services firm. He planned to take a leave of absence to run ORHA, but he had a different arrangement in mind for Naab. Garner wanted him to "sub" for ORHA, Naab says-in other words, to come on as a contractor. Unisys held numerous contracts through which the government could hire Naab. Garner said, " 'Dick, I'll take you whatever way you want to do it,' " Naab recalls.

Naab told his bosses he was taking Garner's offer. Then he wrote his own job description for the post of deputy coordinator of the Northern Region. The language was broad and unspecific, so Naab could perform a wide range of duties, he says. Defense Secretary Donald Rumsfeld's staffers called Unisys and said they wanted to make the hire under a pre-existing contract Unisys held with the General Services Administration, according to Rick Rosenburg, who manages the Defense business of Unisys' Federal Government Group. The contract, known as a federal supply schedule, is a pre-approved set of services any government agency can order from Unisys through GSA. Schedule contracts are designed for fast, streamlined purchasing, but a number of agencies have been found to have misused them.

Defense officials wanted to hire Naab using a Unisys schedule for information technology services, the most heavily used of all the schedules. "It was the contract of choice for the government," Rosenburg says. But the IT contract didn't include any of the nation-building efforts Naab would undertake. The statement of work seeks a "subject matter expert" to undertake tasks such as conducting "an assessment of the current situation affecting the Kurds." A copy of the order, heavily redacted by the Defense Department, appears not to mention technology-related work, save for a requirement to write "periodic monthly reports in Microsoft Word." Naab says that the work order's language was inconsequential. He was going to Iraq to help run the reconstruction.

Just a month into Naab's stint, Garner left Iraq, replaced as head of reconstruction by L. Paul Bremer. ORHA dissolved into the Coalition Provisional Authority headed by Bremer. Naab stayed on and got a promotion. Upon the transfer of a military officer who had been serving as coordinator for the Northern Region, Naab, still a Unisys contractor, took the top job. For five-and-a-half months, Naab fulfilled the role as a Unisys employee working under the technology contract. Ten weeks before leaving Iraq, he converted to temporary government employment at the Senior Executive Service level, so he could better interface with other contractors, he says. Today, he is back at Unisys.

'Make It Happen'

The Defense Department in-spector general has examined and strongly criticized Naab's contract and more than a dozen others awarded on ORHA's behalf. Naab wasn't the only employee hand-picked by Garner and senior ORHA staff. The IG's March 2004 report makes clear that ORHA regularly gave contracting officers lists of people to hire and told them to take care of the details. The IG found that ORHA failed to plan how it would acquire the goods and services it needed to perform its mission and to carry out initial reconstruction tasks. Routinely, "contracting rules were either circumvented or liberally interpreted," the IG reported in March 2004. Competition was limited-often leading to higher prices-and the government had little oversight of contractors whose suitability for jobs sometimes was questionable.

In February 2003, when Defense Department officials realized that ORHA had no contracting and acquisition strategy, two Defense contracting agencies were assigned to help-Washington Headquarters Services and Defense Contracting Command-Washington. But contracting officers in those units often just rubber-stamped orders and requests from ORHA, the IG found. Under normal circumstances, acquisition and program officials together develop written requirements for services, experts and goods to acquire. Contracting officers determine acceptable costs, identify potential contractors and establish plans to monitor them. The procedures are meant to ensure that the government gets what it pays for.

But ORHA officials mostly gave requirements to contracting officers verbally with little forethought, the IG found. One contract specialist was told, "These are the people we [ORHA] need to bring on board . . . make the rest of it happen," the IG reported. In one case, ORHA officials sent the specialist a statement of work along with a résumé for Terry Sullivan, an employee with longtime government intelligence contractor SAIC, who they wanted to hire as an intelligence analyst. Sullivan wrote the statement of work himself. The contracting officer used that information to justify the award of a sole-source order worth nearly $400,000, the IG found. Sullivan, like Naab, was hired under one of his employer's GSA schedule contracts, this one reserved for management consulting services

ORHA officials hired other employees through SAIC in similar fashion, including a team whose task was to set up a newspaper and broadcasting enterprise. That work was derided by Iraqis as propagandistic, and the contract with SAIC, which has no experience in media operations, ultimately was terminated.

Sometimes, ORHA took more circuitous routes to obtain employees such as Marian Spencer. An SY Coleman employee like Garner, Spencer became ORHA's protocol officer responsible for squiring congressional delegations and other high-level visitors. To avoid any appearance of impropriety, Spencer says, she took a leave from SY Coleman and went to work for another contractor, Native American Industrial Distributors Inc. Defense Contracting Command-Washington then hired Spencer for ORHA under a contract with that company.

The company, owned by an American Indian former Army colonel, was encouraged to get in on Iraq reconstruction in April 2003. An official with the Defense Contracting Command-Washington-the other ORHA contracting support group-held a conference with more than 20 representatives from Native American firms. The session was days after the award of the first major Iraq reconstruction contract-a $680 million order to repair Iraqi infrastructure-to Bechtel Group, a San Francisco-based engineering and construction giant. "I told them right up front, 'Look, guys. We are getting requisitions all the time,' " the contracting official, Kathy Dobeck, told Indian Country Today, a weekly national newspaper covering American Indian issues. Dobeck urged the companies to qualify for small and minority-owned business programs, the paper reported. "I didn't want the big boys to get all the work," she said.

For its part, Native American Industrial Distributors has won only one Iraq contract directly-Spencer's-according to government documents. The company's Web site has job postings for various administrative and operations specialists, including an opening for Spencer's job. (She has returned to the United States.) "Our aim," the site says, "is to do what we do best, provide technology solutions to real-world challenges." Spencer, a former Army lieutenant colonel who had served on active duty as a protocol officer, was paid $164,000 over a six-month period, the IG found, almost four times the rate that would have been paid to the Army lieutenant colonel she replaced. The IG recommended that Spencer's contract be terminated, but by the time of the report's release, she had left Iraq. As of late May, she still was on leave from SY Coleman.

While ORHA's contracting practices were unorthodox and often improper, according to the IG, they hardly were uncommon for agencies within the Pentagon's orbit. The IG has documented similar practices at the Defense Department for years.

A History of Problems

In September 2001, the IG released an audit of more than 423 contract awards made by 15 Defense contracting organizations using multiple-award contracts, of which the GSA schedules are one type. The results foreshadowed the practices employed in Iraq. Many of the 15 organizations made numerous sole-source awards without giving companies a chance to compete and without justifying the limited competition, the IG found. Contracting agencies already had been put on notice about limiting competition, particularly when using GSA schedule contracts like the ones ORHA tapped. Yet 72 percent of the contracting actions the IG examined were directed to a single company.

Contracting officers were supposed to determine which companies were best suited to perform work, yet they routinely accepted officials' recommendations about which vendors to hire. Just like at ORHA, Defense agency and program officials told contracting officers which companies they wanted, and the officers chose contracts that made sole-source awards easy.

The majority of orders under the contracts reviewed in 2001 were for services. In October 2003, the IG specifically reviewed a number of services deals totaling $17.8 billion. Again, the IG found limited competition, a lack of effort to determine reasonable prices and a lack of contractor oversight-red flags also rose about ORHA's methods and about those of its successor, the Coalition Provisional Authority.

Today, two more inspectors general are examining the alleged misuse of contracts for reconstruction and other work in Iraq. The coalition authority IG, which will function for at least six months after the transfer of sovereignty in Iraq, is reviewing CPA contracting. And the Interior Department IG has opened an inquiry into how the Army used an Interior fee-for-service contracting organization, the National Business Center, to hire prison interrogators from CACI International Inc. The interrogators were hired under CACI's GSA technology schedule and worked at Abu Ghraib prison, the scene of Iraqi prisoner abuse. Among the questions surrounding that order is whether or not CACI employees had sufficient government oversight while working in the prison. In May, the Defense IG also announced an audit of all Army Corps of Engineers contracts awarded in the global war on terrorism.

A Private Matter

Questions about contactor oversight-specifically who will manage the billions of dollars in reconstruction work that is under way in Iraq-are likely to dog the new Iraqi government and U.S. embassy. Contracting has become more complex. Two organizations provided the first support to ORHA. But today, more than a dozen organizations run contracts, many on behalf of the CPA's Program Management Office, which has set priorities for reconstruction.

The PMO doesn't award contracts using U.S. funds, primarily because it lacks sufficient contracting staff and expertise. (A spokeswoman says the staff will soon comprise 150 people.) Instead, like ORHA, it relies on other agencies, a number of which also are running their own Iraq reconstruction contracts. For example, the Army Corps of Engineers awarded two oil contracts in January 2004 at the PMO's behest. In March 2003, the Army Corps already had awarded a contract worth $7 billion to oil services firm Kellogg Brown & Root to restore Iraqi oil wells and refineries.

The PMO also has outsourced the management of its contractors. In March, the office announced the award of 13 contracts in six key areas of infrastructure-electricity; public works and water; communications and transportation; buildings, education and health; security and justice; and oil. Each sector's companies are overseen by other contractors. Those six firms, in turn, are overseen by another company, AECOM Technology Corp., a Los Angeles-based technical services firm specializing in public works and aviation.

In some cases, sector management contractors are overseeing projects led by companies with which they have business relationships, prompting four members of Congress to raise conflict-of-interest concerns and charge that "the administration has abdicated its responsibility to ensure that U.S. taxpayers' dollars are spent wisely."

Further muddying lines of accountability, none of the construction contracts was awarded by the PMO. Instead, the PMO relied on the Pentagon Renovation Office to handle the sector management pacts, while the Air Force Center for Environmental Excellence, the Army Corps of Engineers, and an Army and a Navy organization handed out construction contracts. The PMO also oversees an infrastructure construction contract awarded by the Agency for International Development.

This deep, wide-ranging reliance on corporations follows Garner's plan for ORHA. From the start, the PMO chief, retired Adm. David Nash, planned to use other agencies as intermediaries and to shift most construction and management responsibility to the private sector, says Charles Krohn, Nash's former public affairs officer. For example, the PMO "would use the Corps of Engineers simply as a vehicle," Krohn says, to "just pass the money."

But CPA's Bremer wasn't satisfied that money was being spent fast enough on projects that made visible improvements. Thus, the PMO established the Accelerated Iraqi Reconstruction Program. As of June, it had employed more than 4,000 Iraqis on 52 projects worth $143 million, including sewer repair and cleanup in cities that recently saw heavy fighting between coalition forces and Iraqi militants. All the contracts were awarded by the Army Corps.

Rebuilding Iraq is a huge undertaking carried out in the midst of continuing violence, so some contend it should not be judged by normal standards. The Defense IG failed to grasp that adhering to typical contracting procedures "would have straight-jacketed" reconstruction "and resulted in the complete failure to provide urgently needed supplies and services," wrote Col. Joe Conley in response to the IG's criticism of the Defense Contracting Command-Washington, which Conley heads. "The reviewers completely failed to recognize the critical and time-sensitive nature of awarding these contracts," he wrote. The IG acknowledged that ORHA officials "wanted immediate results." But officials failed to adequately plan how to manage the more than $20 billion in U.S. funds obligated so far to achieve those results.

From the outset, the only plan appears to have been to let the private sector manage nation-building, mostly on their own. Indeed, there are so few government officials to monitor the companies, "the contractors are our first line of defense" in ensuring proper financial management, says John Betar, assistant inspector general for auditing.

Reflecting last February on the situation in Iraq, Garner said he wished he'd planned more, though he wouldn't have slowed down the process. "I'd find a way to have money ahead of time, so you can get your contractors organized," he said. Now, the Iraqi government is feeling out its first days of sovereignty and the U.S. embassy in Baghdad is opening its doors. Yet it's not at all clear that U.S. and Iraqi government officials are any better prepared to keep contractors under control and reconstruction on track.

Anne Laurent contributed reporting for this story.

By Shane Harris

July 1, 2004