The Slog of Reconstruction

The massive nation-building effort under way in Iraq, led largely by the U.S. government and American contractors, has been beset for almost two years by delays, insurgent attacks and corruption. Any one of these factors could derail the initiative, which aims to make Iraq an economic engine of the Middle East. Taken together, however, and in light of the findings of two new reports on the reconstruction, the future of rebuilding looks imperiled.

A number of factors are in play. For starters, in Iraq's cash-based economy, which ran on patronage rather than market principles, corruption is rife. The inspector general for the Coalition Provisional Authority, the former U.S.-led occupation force, has managed or coordinated more than 110 criminal investigations and has opened cases relating to 272 hot line reports of fraud, waste or abuse. The Iraqi government has charged Iraqi construction companies with equipment theft. And an Iraqi government official is suspected of pilfering $500,000 in funds set aside for local governance projects, possibly siphoning some of that money to insurgents.

But corruption alone isn't to blame for the slow pace of rebuilding, which can be measured most clearly by the money the United States hasn't spent in Iraq. The CPA inspector general's mandate to audit the spending of U.S. funds was extended in June despite the CPA's dissolution. According to a November 2004 report, only about half the $24.1 billion Congress allocated for reconstruction had been obligated for contracts. Of the $13.4 billion obligated, only $5.2 billion, less than a quarter, had been spent. From the much-heralded $18.4 billion Congress approved in October 2003, which was to kick off a massive round of projects in critical areas such as electrical and water systems, only $1.6 billion, or about 9 percent, had been spent when the inspector general's report was released.

The Holdup

So what's stalling the program? First, there are the violent conditions in Iraq, where contractor employees are regularly targeted for kidnapping and execution. Reconstruction planners didn't anticipate that contractors would need so much physical protection from insurgents and foreign terrorists, according to an analysis released in November 2004 by the Army and the Professional Services Council, a Washington trade association. The military protects workers who travel with the armed forces, or who are involved with military projects. But there are likely thousands of contractors working for nonmilitary agencies, such as the U.S. Agency for International Development or the Treasury Department. These companies must hire their own security forces.

An estimated 20,000 private security contractors are working in Iraq. Now the Army worries that the demands of war have exhausted the supply of security workers in the United States.

In addition to kidnappings and ambushes, the Army analysis attributed the slow reconstruction to shortages of critical U.S. government personnel. Particularly lacking are career procurement and contracting specialists with the skills and experience to manage massive nation-building operations.

The government "didn't have anywhere near the people with the expertise" needed to manage such a multifaceted operation, says Stan Soloway, president of the Professional Services Council. In a move that has befuddled procurement experts, agencies hired contractors, rather than deploying large numbers of federal personnel, to oversee other contractors. The CPA divided key reconstruction projects-to be paid for from the initial $18.4 billion appropriation-into six categories: electricity; public works and water; communications and transportation; buildings, education and health; security and justice; and oil. Contracts were awarded to companies in each sector. But each sector's companies were overseen by other contractors. Those six oversight firms, in turn, were managed by another company, AECOM Technology Corp., a Los Angeles-based technical services firm specializing in public works and aviation.

Some officials involved in the reconstruction have played down the significance of the heavy corporate presence and relative lack of government management. They say that if the work requirements are clear, then projects should proceed with few problems. The CPA inspector general, in his report, set out to "determine if adequate accountability controls were in place to ensure that appropriated funds were used for the purpose specified." However, "due to time constraints and other auditor priorities," IG Stuart Bowen wrote, "we revised our objective to examine whether processes used to identify, review and validate requirements were reasonable and supportable."

The inspector general basically confirmed that accountability procedures were in place, not whether they were being used. The Army analysis, however, dug a bit deeper. It discovered that, despite the size and scope of the Iraq effort, contract specialists weren't deployed to Iraq in large numbers, distancing planners in the United States from contractors in the field. As a result, work has not always been carried out as designed.

Soloway says this disconnect impeded the government's ability to manage reconstruction contractors, and raised red flags among auditors who found work orders changed on the fly with minimal government oversight.

Planning for the Unplannable

Those scrutinizing wartime contracting emphasize that Iraq is a "contingent" environment; conditions change constantly and can't be predicted. Therefore, they say, it's unreasonable to hold contracting in Iraq to the same standards as those in the United States.

But it would be inaccurate to suggest that Iraq is the first contingent, wartime location in which the U.S. government's contracting apparatus has had to function. It was engaged in post-conflict rebuilding in the Balkans and Somalia in the 1990s. Results were mixed, with some contractors coming under fire for overcharging and some officials being accused of exercising lax oversight. Iraq demands even stronger management. Never have so many federal agencies hired so many companies for so broad an effort encompassing military support, physical reconstruction, and a variety of economic and social development programs.

Soloway notes that while the military's doctrine for fighting wars is very specific, no similar set of guiding principles governs the conduct of contracting operations. His group's analysis recommended developing a comprehensive, governmentwide set of procurement rules for wartime and other contingent environments.

It also called for establishing contingency-ready teams made up of everyone involved in contract planning and execution, including contractor representatives. Such teams were used in the Balkans, but not in Iraq.

Almost any future military action will contain some element of nation-building, Soloway says. That increases the need for new doctrine-if not in time to right the teetering Iraq reconstruction effort, then at least for the next U.S. engagement abroad.