The Aid Offensive

ith the Bush administration set to spend $2.4 billion this year on postwar humanitarian and reconstruction assistance for Iraq, the U.S. Agency for International Development-which appropriators have left to wither over the last decade-is back in the limelight and facing perhaps the biggest challenge in its history.

Shortly after the war started, the $7 billion agency, which will administer most of the reconstruction funding, let eight contracts for U.S. companies to handle everything from rebuilding schools and hospitals to restoring electricity and sanitizing Iraq's water supply. The success of that work will say a lot about U.S intentions in the region. Advocates are even calling it a new Marshall Plan. For AID, it's a chance to prove the agency can shine again.

In 1961, President John F. Kennedy created AID to oversee and consolidate U.S. foreign aid programs. The agency's heyday came during the Vietnam War era. Since then, says Rick Barton, a former agency official and current senior adviser at the Center for Strategic and International Studies, a Washington think tank, "It's been a steady process of shrinking, freezing and downsizing that's left the agency in a weakened state."

According to Brookings Institution scholar and international development expert Lael Brainard, presidents for the last 30 years have tried to redefine AID's mission with little success. The agency's hope is that its efforts in Iraq will demonstrate anew the importance of a strong foreign aid program.

By the time U.S. and British forces entered Iraq, AID already had dispatched to Kuwait an interagency Disaster Assistance Response Team with more than 60 members. AID Administrator Andrew Natsios says the team, which is the largest of its type ever assembled, has a broad range of expertise among its members, who have the authority to disperse grants to relief organizations on the spot.

Still, relief groups were quick to complain about the humanitarian relief effort, arguing that AID was slow to begin working with them and was unprepared for the likely fallout from the war. Natsios argues the agency is better prepared for the relief effort in Iraq than any other emergency in his 14-year career managing such work. Within days after the war started, AID already had spent about $500 million on humanitarian relief for Iraq.

But Barton, for one, is less sanguine about the agency's oversight of the $900 million AID has budgeted for initial contracts to rebuild Iraq's infrastructure. In March, the agency issued the first two reconstruction contracts: a $4.8 million award for assessment and management activities at Umm Qasr, the only deepwater port connecting Iraq to the Persian Gulf; and a $7 million contract to for personnel support. Additional contracts were issued in April to other U.S. firms to launch an educational assistance program.

The contracts are too large, Barton says, indicating that AID is scrambling to hand out awards quickly, at the expense of using a fully competitive bidding process. The agency, he says, "is basically getting a huge piece of its budget in one shot" and being asked to spend it quickly.

Once all the contracts are awarded, another question will emerge. Can AID accurately assess the results? Past history is worrisome. According to a January General Accounting Office report (GAO-03-111), the agency has long had problems evaluating the work of its contractors.

AID will have to do better in Iraq if it wants to avoid cost overruns. That's because AID's cost-plus-fixed-fee contracts entitle the contractors to reimbursement of all of their costs, plus a fixed fee-usually about 10 percent of their estimated costs-on top. There are no goals to meet, but the contracts do require contractors to provide periodic reports on progress.

The agency's oversight problems stem in part from its recent downsizing. Since 1990, the annual number of new hires has fallen by 38 percent. Today, nearly 60 percent of the agency's overall workforce consists of contractors. "AID has had to evolve from an agency that directly implements projects to one that plans and monitors them," GAO reported.

Already, controversy is following AID's work in Iraq. Criticism flared when Natsios invoked emergency procedures and allowed only a select group of U.S. companies to bid for the reconstruction contracts it issued in March. U.S. allies abroad, particularly Australia and the United Kingdom, asked AID why their firms were excluded. Others charged the agency with rewarding firms with political connections.

AID spokesman Luke Zahner says the agency waved procurement rules to ensure a speedy process. He notes that the agency is required to award contracts only to U.S. firms, and that in the case of subcontractors, the nationality requirement already has been waived. And, he says, career procurement officers, not political appointees, were handling all of the awards.

That hasn't reassured everyone. Hattie Babbitt, deputy administrator of AID under Clinton, says she has been concerned by the "lack of transparency" in the bidding process. She doubts that AID actually awarded contracts on the basis of political connections, but still fears that "The process hasn't passed the sniff test."

Of course, says Barton, AID ultimately will be judged by how its programs work on the ground. "AID is being called upon to be a significant player, and that's a measure of its relevance," says Barton. "The issue now is whether it will have an impact."