U.S. Government Issues Audit Report on Bechtel’s Iraq Reconstruction Work

In a newly released review of Bechtel’s spending under its $1.3 billion Phase II Iraq reconstruction contract with the United States Agency for International Development (USAID), the Special Inspector General for Iraq Reconstruction (SIGIR) reported that the program “accomplished a substantial amount of work that contributed to the reconstruction of Iraq, particularly in the electricity and water and sanitation sectors.”


It also noted that Bechtel’s work employed thousands of Iraqis and dozens of Iraqi firms, “thereby injecting much-needed capital into the economy.”



Responding to the SIGIR report, USAID declared, “Bechtel performed exemplary work that was responsive and cost-effective to the US Government and the American taxpayer.”



Among the accomplishments of work under Phase II highlighted in the report were increases in electrical generation capacity at the Baghdad South power plant sufficient to light 636,000 homes; the construction and startup of a large new gas turbine at the Kirkuk Power Station; successful refurbishment and expansion of the Shark Diljah and Karbala water treatment plants; and rehabilitation of the Zafaranyah and Kadhamiya sewage lines and pump stations.



SIGIR reported that audits of Bechtel’s costs by the Defense Contracts Audit Agency questioned only about $250,000, or 0.02 percent of total spending under the Phase II contract. The report said Bechtel provided “voluminous” information to USAID “on a continuing basis” about project costs, schedule performance, and other aspects of its work. SIGIR also determined that Bechtel’s support costs, including such items as management, camps, and security, were “in line with the support costs incurred by other major contractors—both in Iraq and in the United States.”



The audit found that of 24 job orders issued by USAID under Phase II, “10 did not achieve their original objectives as stated in the original scope of work” (emphasis added). Among the reasons SIGIR cited were the fact that “the scope of work and funds available changed over time” and “the ever-changing security situation in Iraq caused schedule delays, resulting in increases to support and direct construction costs.”



As Bill Shoaf, Bechtel’s current program director of Iraq reconstruction, told The New York Times, “Conditions change and priorities change and customers want change.” He also explained that USAID substantially changed the scope of several original job orders in early 2005 when it cut $500 million from the contract value for Phase II, lowering the total from $1.8 billion to $1.3 billion. The funds were “reprogrammed” by the government for other purposes such as security as part of an overall $3.5 billion shift in government spending priorities.



In a response to SIGIR’s audit, published as part of the report, USAID took issue with the unstated implication that the failure to meet original objectives represented a failure of contract management or execution:



USAID believes that focusing exclusively on the original objectives of individual job orders is not a proper way of determining whether job orders and the contractual requirements were successfully completed, and gives a distorted view of the overall success of the Bechtel contract. . . . Job orders are a flexible mechanism through which USAID gives instructions to the contractor. This flexibility proved itself to be very useful as the fluid circumstances in Iraq necessitated frequent changes. . . . In contrast to the original objectives standard, USAID views the success of the job orders in the context of their objectives as amended through the job order amendment process. Such amendments were undertaken with great consideration for effective use of US taxpayer funds and maximal results for the Iraqi people. . . . Focusing solely on the original objectives to assess performance does a disservice to the achievements of Bechtel and USAID infrastructure team in a very difficult situation in Iraq.