U.S. bans non-coalition countries from Iraq reconstruction contracts

The Bush administration has banned countries that didn't support the U.S. invasion of Iraq from competing for prime reconstruction contracts valued at more than $18 billion. The new policy will prevent Russia, France, Germany and Canada from playing much of a hands-on role in rebuilding the war-torn country.

Deputy Defense Secretary Paul Wolfowitz ordered that non-coalition countries be excluded from competition for more than two dozen reconstruction contracts, saying in a Dec. 5 memo that the move was "necessary for the protection of the essential security interests of the United States."

Claiming security protection as a basis for restricting international competition is allowed by a procurement agreement among members of the World Trade Organization, said Martin Trybus, the deputy director of the Public Procurement Research Group at the University of Nottingham School of Law in England.

The procurement agreement establishes full and open competition as the norm in arenas such as the Iraq reconstruction effort, he said. Nations are allowed few exceptions, one of which is claiming that full competition would endanger one country's national security.

One country can appeal another's claim, but foreign courts have been hesitant to hear such arguments, because they consider national security tantamount to executive privilege, and therefore sacrosanct, Trybus said. He said he thought it was unlikely that the Bush administration's policy would be challenged.

Wolfowitz also couched the move as vital to the outcome of the U.S.-led war. "An unsuccessful reconstruction effort would have serious negative effects on the ultimate success of the war effort," he wrote. "Thus, it is clearly in the public interest to limit [competition for] prime contracts…"

Another legal expert argued the decision was based more on politics than law, and that it undermined the efficiency of the procurement process. "Once you inject political considerations into a procurement system, by definition that [system] is not reaching optimal performance," said Christopher Yukins, associate professor of government contracts law at The George Washington University Law School.

Speaking at a conference in Washington Wednesday about Iraq's reconstruction, the Defense Department official managing contract awards said the release of requests for proposals on 26 reconstruction contracts had been delayed until February due to problems finalizing their requirements. The contracts cover a broad range of services, including electrical power and water system rehabilitation, and their funds were authorized as part of the recent emergency supplemental Congress passed to fund the war.

The administration's action was rebuked by some of the excluded countries, and officials indicated they would reconsider whether to donate money to Iraq's rebuilding. According to the Washington Post, France questioned the legality of the move. Russia also indicated it might be reluctant to forgive Iraqi debt, the paper reported. Iraq owes foreign nations about $127 billion, according to various studies.

But while the Bush administration may be punishing non-allied nations, other efforts to promote reconstruction efforts could benefit countries that didn't strongly support the war.

At the reconstruction conference, a Commerce Department official said the United States is working with some Middle Eastern countries to promote business in Iraq among American firms and local companies. Two of the nations that have signed onto the program, Turkey and Saudi Arabia, prohibited the U.S. military from using their countries as staging points in the war.

The official, Jay Brandes, director of Commerce's Iraq Task Force, also said the administration is endorsing a conference in Amman, Jordan, in January, at which officials from Iraqi ministries and the U.S. occupation authority will meet with local companies to discuss how to win reconstruction business, mostly as subcontractors to the coalition prime contractors.

The federal government also is setting up means to finance reconstruction. The U.S. Export-Import Bank has established the Trade Bank of Iraq, which may issue letters of credit so that companies looking to do business in Iraq can obtain loans and financing more easily, said David Chavern, the Ex-Im Bank's deputy general counsel. The United States has committed $500 million to the new bank, and other nations have contributed $1.5 billion, Chavern said. The bank is now reviewing proposals to help rehabilitate Iraq's beleaguered oil processing infrastructure, he said.