Big firms hustle for postwar contracts

Michael O'Neil, Joe Reeder, and John Garrett are not typical K Street denizens with recent experience on Capitol Hill, at the White House, or inside domestic agencies. What they do have are impressive resumes from their years with the Central Intelligence Agency, the Department of the Army, and the Marine Corps.

That's one reason the three law and lobbying firms where O'Neil, Reeder, and Garrett work expect to advise and open doors for their American and foreign clients so they can capitalize on the highly lucrative reconstruction contracts that lie ahead for postwar Iraq.

"Iraq is going to be Afghanistan on steroids as far as nation building is concerned," said Garrett, the defense/security adviser at Patton Boggs, a former Marine colonel, and a decorated combat veteran from Vietnam, the first Gulf War, and Somalia. "There are a lot of opportunities emerging in a full range of sectors," he said. Patton Boggs's clients include a British logistics firm that has helped distribute humanitarian aid in Afghanistan.

Others on K Street share Garrett's view, but many lawyers and lobbyists also say that as the rebuilding funds start to come on line from the U.S. government, the process for chasing them down is mired in confusion.

"We're trying to figure out what the rules of the road are because this is a fast-evolving situation, like the war itself," said O'Neil, a partner at Preston Gates Ellis & Rouvelas Meeds and a former general counsel at the CIA. Preston Gates represents Foster Wheeler, a large U.S. construction company. "The problem that companies face is the uncertainty of what will follow the immediate reconstruction," O'Neil said.

In the scramble to gain an edge, many international giants from Britain, France, Kuwait, South Korea, and elsewhere are vying along with American firms for the big postwar projects to rebuild roads, bridges, energy and telecom systems, and other parts of Iraq's infrastructure. The stakes are high: The Council on Foreign Relations has estimated that the cost of rebuilding Iraq could be as much as $20 billion a year for several years.

To the dismay of foreign firms, particularly among our British allies, most of the early infrastructure and humanitarian relief contracts being awarded by the U.S. Agency for International Development, the Pentagon, and other government entities have been reserved for big American companies.

AID's $600 million contract to rebuild Iraq's roads, bridges, and port facilities is the largest one pending. The contract, which should be awarded soon, will name a lead contractor from among a group of large American firms that includes Bechtel, Fluor, the Louis Berger Group, and Parsons. Each has handled mammoth reconstruction work in the past. Still other U.S. corporations are in the running for sizable chunks of subcontractor work, including Kellogg Brown & Root, a unit of Texas energy giant Halliburton, which Dick Cheney headed for five years before he ran for vice president.

Altogether, AID may hand out as much as $2.4 billion-which the Bush administration requested from Congress last week-to cover eight separate projects, including the major infrastructure contract as well as humanitarian relief. For instance, the agency is looking to award a contract of about $100 million to a large financial services firm to help restructure Iraq's financial system. AID has already awarded a small, $4.8 million contract to Stevedoring Services of America, a Seattle firm that will manage the Iraqi port of Umm Qasr.

Meanwhile, the Army Corps of Engineers is studying bids from about a dozen firms looking to land pieces of a $500 million infrastructure project for the Persian Gulf region, including Iraq. The Army Corps has already tapped KBR to take the lead in putting out fires in Iraq's southern oil fields. And according to Pentagon sources, KBR also recently won a contract from the Defense Threat Reduction Agency to oversee a group of companies and specialists that will handle and dispose of any weapons of mass destruction found in Iraq. Since 2001, KBR has done similar work in Kazakhstan and Russia for the Defense Threat Reduction Agency.

On top of these projects, the United Nations' Oil for Food program for Iraq is expected to dispense about $8 billion this year to foreign and American companies for a variety of humanitarian relief efforts and limited infrastructure projects. Hoping to level the playing field for their home-based companies, some foreign governments are angling to expand the U.N.'s role in overseeing funding for postwar reconstruction efforts.

Some outside analysts and scholars are sympathetic to the concerns of foreign governments and say that the Bush administration's restrictive rules favoring American companies could backfire.

"One of the best ways to get a broad coalition of international backing, which is the next stage at the U.N., is to share Iraq's reconstruction with other countries," said James Thurber, a professor of government at American University.

Critics have also raised concerns that some of the U.S. contracts, including the biggest AID project, are being handed out under emergency rules that curb the normal open-bidding process. In seeking bids for its prime contract, AID invited only the handful of major construction companies that have worked on similar overseas efforts in the past. Some skeptics have also noted that the AID contract is a potential bonanza for companies, because it is set up as a cost-plus-fee deal that reimburses the contractor for its bills while guaranteeing a set profit.

Further, experts on postwar reconstruction such as John Dower, a professor of history at Massachusetts Institute of Technology, say that the current process of contracting reconstruction work to large private companies is sending the wrong message to Iraqis and to the rest of the world. "There seems to be enormous pressure coming from special-interest groups that would be interpreted by much of the world as profiteering," said Dower, author of the book Embracing Defeat: Japan in the Wake of World War II. "This will certainly complicate the process of so-called `nation building' and `democratization.' This is something that didn't take place in occupied Japan."

Nonetheless, because of the potential financial rewards, companies have been busy hiring K Street firms to help seal some deals.

Take Patton Boggs, where partners David Dunn, Timothy Mills, and Garrett are helping clients ferret out postwar reconstruction funding. Mills, for example, is advising one of his clients-a British logistics company that helped distribute post-conflict humanitarian aid in Kosovo and Afghanistan-on subcontracting opportunities with both AID and the U.N.

"The governmental decisions on contracting and subcontracting are moving targets that are very difficult for businesses to keep up with, much less hit," said Mills, who served as a command judge advocate of an Army Reserve headquarters.

Further, Dunn and Garrett are working for a large Kuwaiti company that would like to get a piece of the postwar projects. Dunn argues that companies in the region bring a lot to the table. "It's a mistake to ignore the advantages that can be provided by a local company," he said, because they have "advantages in terms of logistics, local business practices, warehousing, and freight-forwarding."

Garrett, meanwhile, is wooing a large Texas company that makes chain-link fences that's eyeing business in Iraq. And Patton Boggs lawyers are also talking to Turkish companies that hope to provide humanitarian assistance and civil engineering services in Iraq.

Reeder, a former Army undersecretary, is finalizing a deal over at Greenberg Traurig to represent the Patriotic Union of Kurdistan, one of the two major political parties among the Kurdish people. The group is looking for legal and lobbying expertise in Washington to ensure that the postwar reconstruction program addresses Kurdish aspirations.

Reeder and the firm have useful contacts in Washington, too. When he was Army undersecretary in 1993, Reeder got to know Lt. Gen. Jay Garner and has maintained professional ties with him since Garner's retirement. Garner has been tapped by the Bush administration to run the new Office of Reconstruction and Humanitarian Assistance, which means he will be overseeing the initial occupation and reconstruction of Iraq once the war ends.

Meanwhile, at Preston Gates, O'Neil has been working with his partner, Tim Peckinpaugh, for client Foster Wheeler and other U.S. and foreign firms that want a shot at reconstruction work. Foster Wheeler, which worked on rehabilitating power systems in Kuwait after the first Gulf War, is interested in doing similar work in Iraq when funding sources are established.

"They're trying to figure out who will be administering mid- and long-term funding for Iraq's reconstruction," O'Neil said. "They will be arguing that things can't be run under truncated bidding procedures that aren't open to all qualified bidders."

Still another K Street giant that's interested in Iraq opportunities for its clients is Akin, Gump, Strauss Hauer & Feld. Akin Gump partner George Salem is working with several other partners in the firm to help current and prospective energy and telecom clients from Kuwait, Saudi Arabia, Russia, and the U.S. "We're trying to figure out what are the sources of funds that might be available for our various clients," said Salem.

Moreover, Sukhan Kim, another Akin Gump partner who's long represented Hyundai Engineering & Construction in the United States, recently flew to South Korea to meet with Hyundai's CEO about the company's interest in Iraq. Kim noted that Hyundai, which worked on projects in Iraq during the 1990s, is owed about $1 billion by the government of Saddam Hussein. Hyundai Construction wanted to talk to Kim about whether Akin Gump might help the South Korean company recover the debt and land new work in postwar Iraq.