The New York Times, March 23, 2003

Which Companies Will Put Iraq Back Together?

This article was reported by Richard A. Oppel Jr., Diana B. Henriques and Elizabeth Becker, and was written by Ms. Henriques.

WAR began last week. Reconstruction starts this week.

That, at least, is how it looks to government contract officers, who in the coming days plan to give American companies the first contracts to rebuild Iraq, a task that experts say could eventually cost $25 billion to $100 billion. It would be the largest postwar rebuilding since the Marshall Plan in Europe after World War II.

That comparison is being made at every opportunity by Bush administration officials, who emphasize American generosity and farsightedness. But the government's decision to invite only American corporations to bid on these contracts has added to the profound international divisions that already surround the war.

The United States plans to retain control over the occupation and reconstruction of Iraq, allowing the administration to decide how it will spend the money needed to repair the country. These contracts will be financed by the taxpayer, although senior administration officials have hinted broadly that Iraqi oil revenue will also be used to rebuild the country.

"We're going to use the assets of the people of Iraq, especially their oil assets, to benefit their people," said Secretary of State Colin L. Powell on Friday.

At the top of the to-do list, according to confidential bidding documents, is rebuilding Iraq's only deep-water port, the harbor at Umm Qasr, where cargo is loaded on ships that travel down a waterway in southern Iraq to the Persian Gulf. Dredging work is expected to begin immediately after the port, which was seized by a British-led invasion force on Friday, is secure enough. The bid terms give contractors no more than eight weeks to prepare the port to handle the unloading of pallets and containers from large ships.

A separate bidding process is being conducted by the Defense Threat Reduction Agency, a unit of the Defense Department. That agency is seeking bids and résumés from companies that are skilled in dismantling and neutralizing chemical and nuclear weapons.

Other immediate priorities will be overseen by the United States Agency for International Development. These include rebuilding two international and three domestic airports, ensuring that potable water is available and reconstructing electric power plants, roads, railroads, schools, hospitals and irrigation systems.

Bids sought by the Army Corps of Engineers call for more "expedient" repairs throughout the region that would be controlled by the United States Central Command. These repairs include installing temporary doors, using plywood to cover broken windows and covering damaged roof areas with plastic sheeting.

For now, the Bush administration is seeking money under a supplemental appropriation expected to be submitted to Congress shortly, according to administration officials.

But it may face some heat from lawmakers upset that the administration is moving so swiftly to sign deals with private companies without consulting Congress first.

The companies that have been invited to bid on the work include some of the nation's largest and most politically connected construction businesses. Among them are Halliburton, where Vice President Dick Cheney served as chief executive from 1995 until mid-2000; the Bechtel Group, whose ranks have included several Republican cabinet alumni; and Fluor, which has ties to several former top government intelligence and Pentagon procurement officials.

Others bidding on reconstruction business are the Parsons Corporation, the Louis Berger Group and the Washington Group International, which absorbed Morrison-Knudsen in 1996.

Two other companies have submitted bids in the current round of contract awards, but contract officials declined to identify them. The final roster of seven bidders has already been narrowed to two or three, and contracts are expected to be awarded this week, according to administration officials.

While those contracts are sizable — potentially worth more than $1 billion — they are a pittance compared with the deals to follow, according to Andrew S. Natsios, the director of United States Agency for International Development, which is overseeing the largest contract put out for bids so far.

But Mr. Natsios disputed some of the outside estimates about the reconstruction costs. For example, a report jointly sponsored by the Council on Foreign Relations predicts that it could take $25 billion simply to repair oil export installations and restore the Iraqi electric power system to its status before the first Persian Gulf war in 1991.

"The private contracting companies, all the consulting firms are going to tell us it's going to take $50 trillion to rebuild Iraq," Mr. Natsios said. "We'll make Iraq look like Park Avenue based on this amount of money. These are absurd estimates."

The administration, clearly wary of a long occupation, says it hopes that a new Iraqi interim authority can be in place within a month of victory and that the authority's officials can make some decisions about the pace and financing of reconstruction.

But the administration is already poised to decide which companies will initially oversee and carry out the work. They have extensive experience — and some also have awkward political and financial baggage.

No company has firmer political connections than Kellogg Brown & Root, the engineering and construction arm of Halliburton. Besides its links to Mr. Cheney, the company has been a major military contractor since World War II. Most recently, it handled the high-speed construction of the Guantánamo prison compound for terror suspects .

But since last May, the company has also come under scrutiny by the Securities and Exchange Commission, which is investigating how the company has accounted for cost overruns on its construction and engineering work since 1998. And this spring, its shareholders will vote on a proposal, sponsored by two giant New York City pension funds, calling for a review of Halliburton's previous business ties to Iran.

Louis Berger, based in East Orange, N.J., could be a dark-horse contender in the Iraq reconstruction sweepstakes. Besides its work on an ambitious pipeline to carry oil from Tengiz, Kazakhstan, to a deep-water port on the Black Sea in Russia, the privately held firm has been an important government contractor in the Balkans for years. More recently, it won a contract to oversee extensive infrastructure development in postwar Afghanistan. The centerpiece of the $300 million contract was the rebuilding of a shattered 600-mile highway from Kabul to Herat.

Derish Wolff, the president and chief executive, declined to comment on the current reconstruction bidding process. But he noted that the company had been doing extensive "nation building" work in the Balkans.

"There is a difference between reconstruction and nation building, where you build institutions, and not just infrastructure," Mr. Wolff said. "You have to build, and you have to teach them to build."

Bechtel is considered the largest contractor in the country, and one of the largest in the world. Its board includes a former secretary of state, George P. Shultz, and its ranks once included a former defense secretary, Caspar W. Weinberger.

Bechtel, privately held and based in San Francisco, helped build the Hoover Dam, oversaw work on the tunnel under the English Channel and worked on the cleanup of Chernobyl. But it is facing a political meltdown of its own in Massachusetts, where it is under severe criticism by the state's inspector general for more than $1 billion in cost overruns on the tunnel and highway construction project in Boston, the so-called big dig.

Governor Mitt Romney of Massachusetts has ordered an independent review of the project, which was managed for the Massachusetts Turnpike Authority by Bechtel and its joint venture partner, Parsons Brinckerhoff — which is not related to the Parsons Corporation that is bidding on the Iraqi work.

Jonathan Marshall, a spokesman for Bechtel, said the inspector general's recent report on the project "misrepresents the facts" and predicted that the company would be vindicated by the independent review.

The joint venture "has saved taxpayers more than $1 billion and cut years off the completion time," Mr. Marshall said. "We continue to stand by our record." Mr. Marshall would not comment on the recent bidding for Iraq reconstruction work.

Fluor, based in Aliso Viejo, Calif., is not currently working on any Agency for International Development projects, but it has extensive experience building petroleum facilities in difficult places. It is building an enormous plant on Sakhalin Island, off Russia's Pacific coast, for an international consortium that includes Exxon Mobil, and is developing oil and gas fields in Kazakhstan for a consortium whose largest member is ChevronTexaco.

Last April, Fluor hired Kenneth J. Oscar, who as acting assistant secretary of the Army oversaw the Pentagon's $35 billion-a-year procurement budget. Its board includes Bobby R. Inman, a retired admiral who was also former director of the National Security Agency and deputy director of the Central Intelligence Agency.

Fluor is currently in arbitration to untangle a dispute with Anaconda Nickel in Australia over Fluor's work on a $615 million nickel-cobalt processing plant in western Australia. Fluor has disputed the accusations of poor workmanship, but Anaconda has collected millions of dollars in compensation in the first phase of the arbitration.

A spokesman for Fluor, Jerry Holloway, confirmed that it had been invited to bid on the work in Iraq but said he could not comment on the scale or scope of the contracts.

Parsons, an employee-owned company based in Pasadena, Calif., is one of Bechel's most formidable rivals in the construction market.

Parsons, too, would not comment on the current procurement process. But it has done extensive postwar reconstruction work in Bosnia and Kosovo and built the Saudi military city of Yanbu. It also helped build the subway system in metropolitan Washington. It does not have the prominent political connections that Bechtel and Fluor have, though the labor secretary , Elaine Chao, served on its board for about a year before joining the cabinet in January 2001.

In 1998, Parsons won a contract to take over the vehicle inspection program in New Jersey, a deal that has mired the company in a long dispute over delays and malfunctions. But last year, the state renewed the company's contract for another two years, though it cut the company's pay rate and established penalties for poor service.

After the Washington Group International, based in Bosie, Idaho, took over the ailing but venerable Morrison-Knudsen, it continued to acquire engineering operations from Westinghouse and Raytheon. The Raytheon purchases became a financial quagmire, and Washington filed for Chapter 11 bankruptcy protection in 2001. Last year, it emerged after an extensive restructuring.

It remains a major military contractor, however, and has done extensive work in the department's so-called demilitarization work, which involves the dismantling and safe disposal of old weapons. It dominates the business of neutralizing and disposing of chemical weapons within the United States, according to Jack Herrmann, a spokesman.

Confidential contract documents indicate that companies will be paid under an arrangement known as "cost plus fixed fee." Once the cost of a project is established, the contractor is entitled to recover those costs plus a fee that is a fixed percentage of those costs. That percentage is generally 8 to 10 percent, although the security precautions required under the Iraq contracts might justify a higher fee in some cases, construction industry analysts said.

The fast-track reconstruction bidding is already drawing fire in Congress. "We can't tell the taxpayers in this country, who are going to be asked to foot the bill for all of this, what the charge is going to be in the aftermath," Senator Christopher Dodd, a Connecticut Democrat who is on the Foreign Relations Committee, complained recently. "Apparently, I think the administration believes that they can get away with it, that the Congress will not do anything about it."

Administration officials said they moved swiftly because they needed to line up contractors with proven track records and high-level security clearances.

"The prime contractors are American, and there's a reason for that: In order to work in Iraq you have to have a security clearance, and the only companies that have security clearances are a certain number of American companies that have done this work before in war settings," Mr. Natsios said.

More than 50 percent of the money will actually be spent by subcontractors. Companies in any country, save those on the administration's terror list, can apply to be subcontractors, he added.

He also dismissed the lawmakers' criticism as uninformed. "I think some senators and congressmen, because they're under severe stress, have not maybe gone into the details of this, but their staffs have been briefed," Mr. Natsios said.

But those arrangements do not satisfy construction industry experts, who say that the administration is asking for trouble by not setting up an independent monitoring process from the beginning.

Thomas D. Thacher II runs a consulting firm that monitored the integrity of the cleanup process at ground zero in Manhattan for the Federal Emergency Management Agency and New York City. He questioned the wisdom of demanding such speed without also establishing ways to monitor the integrity of the rebuilding process.

"Anytime you have an emergency response driven by time, the opportunity for fraud, waste and abuse is huge," Mr. Thacher said. "And when the opportunity is that great, it will occur."