Democrats call on Pentagon to oversee Iraq reconstruction contracts

A group of Democrats wants the Pentagon to assume responsibility for oversight of all reconstruction contracts in Iraq in order to prevent conflicts of interest and the waste of tax dollars.

The Coalition Provisional Authority in Iraq has awarded at least two oversight contracts that raise concern about possible conflicts of interest, four Democrats said Tuesday in a new report. Under the contracts, private companies have been given responsibility for managing projects being carried out by other companies with which they have business dealings in other countries.

"You have a situation where there is a cozy nest of interlocking financial interests, and that is what we're going to get to the bottom of," said Sen. Ron Wyden, D-Ore. "The United States government can no longer excuse shabby contracting due to the need to react quickly to a rapidly changing situation in Iraq."

Other authors of the report are Sen. Byron Dorgan of North Dakota, Rep. Henry Waxman of California and Rep. John Dingell of Michigan. The lawmakers said they planned to introduce amendments to the Senate and House Defense authorizations bills requiring the Pentagon to terminate seven oversight contracts in Iraq within 90 days and assume responsibility for all Iraq reconstruction contracts. The amendments would also prohibit Defense from contracting out any future oversight activities to nongovernmental entities.

"We believe that oversight is fundamentally a responsibility of the government, not hiring private contractors that already have relationships with other contractors," Dorgan said.

The report examined two oversight agreements. The first is a $28.5 million contract awarded to a joint venture of Parsons Corp. and CH2M Hill to oversee $1.7 billion in public works and water projects by four other contractors: Fluor, Washington Group International, AMEC and Black & Veatch. The second is a $43 million contract awarded to a joint venture of Parsons and a separate company, Parsons-Brinckerhoff, to oversee $1.6 billion in power generation, transmission and distribution projects by four other contractors: Fluor, Washington Group International, AMEC and Perini.

The report said, however, that Parsons and Fluor are partners in a $2.6 billion joint venture to develop oilfields in Kazakhstan. Additionally, the actions that Parsons takes under the oversight contracts could directly affect its own reconstruction contracts because the company is part of a $1.8 billion Iraq Infrastructure II contract that includes electricity and water projects.

The senators assert that CH2M Hill has similar conflicts of interest because it has ongoing domestic relationships with three of the firms it is responsible for overseeing: Washington Group International, Fluor and AMEC. For example, CH2M Hill and Washington Group International are partners on a $314 million Energy Department cleanup project in Miamisburg, Ohio. In addition, AMEC, Fluor and Washington Group International are CH2M Hill subcontractors on a large Energy Department cleanup project in Hanford, Wash.

Steven Susens, spokesperson for the Coalition Provisional Authority's Program Management Office, which is responsible for reconstruction contracts, refuted conflict of interest claims.

"It's unfortunate that the allegations haven't been checked," he said in a telephone interview from Baghdad. "I'm not sure that they've been able to look at program management, and how these contracts are awarded, and what exactly the role is for these companies to do the work. We will always, for the rest of the existence of PMO, be able to have transparent and open competitions and certainly a process that has the oversight to be accountable to the U.S. taxpayer."

He asserted that no contractors have been given oversight responsibility, saying that instead they have been given program management responsibility. Oversight responsibility rests with government agencies such as the CPA inspector general's office, the Defense Contracting Audit Agency, the General Accounting Office and the Pentagon's inspector general, according to Susens.

"We have probably the largest auditing process of any government contract in history. Everything's in compliance with the transparency regulations that Congress has approved," Susens said. "The companies don't have oversight of the contracts. They make sure that the work is being done, and they support that work through management of the program, and it all falls under the [Program Management Office]."

A spokeswoman for CH2M Hill also denied any conflict of interest and said the CPA is responsible for oversight. Patty Keck said in a statement that CH2M HILL followed Defense's "procurement processes fully, and complied with all disclosure requirements which were fully transparent about our business relationships. Current and prospective business relationships were disclosed through that process or as a matter of public record."

"There is absolutely no conflict of interest in connection with our work with the public works sector [of the] Program Management Office," Keck said.

Parsons did not return a telephone call seeking comment Tuesday.

The lawmakers also sent Defense Secretary Donald Rumsfeld a letter Tuesday objecting to the outsourcing of oversight of Iraq contracts.

"The bottom line is that this kind of oversight system cannot work-and the Pentagon should not abdicate its oversight responsibilities over multibillion-dollar contracts," the letter stated.

The Pentagon's inspector general issued a report March 18 in which it found flaws with contracts awarded by the Defense Department's Defense Contracting Command for the authority between February 2003 and August 2003.

The report concluded that Defense did not adequately plan for the acquisition support that the CPA required. The report also said that supplies and services the CPA used in rebuilding Iraq were quickly acquired, and contracting officers circumvented procedures. In yielding to the pressure, Defense contracting officers neither properly awarded nor administered 24 contracts valued at $122.5 million.

The report found that Defense and CPA personnel did not establish firm contract requirements; misused General Service Administration supply schedules; awarded personal services contracts prohibited by the Federal Acquisition Regulation; allowed out-of-scope activity; did not perform or support reasonable price determinations, and conducted inadequate surveillance of awarded contracts.