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New Iraq Contracts Offer Just 'Scraps'

August 14, 2003|David Streitfeld | Times Staff Writer

Some of California's biggest engineering companies are submitting bids today to restart the Iraqi oil industry, but the Army Corps of Engineers warned that it might not award a new contract -- instead relying on Halliburton Co. to complete the work it already has started.

Houston-based Halliburton has billed the government for $641 million for work done under a no-bid pact awarded in secret March 8. Corps officials in April described the deal as "a limited-duration, limited-scope emergency services contract" and said additional work would be awarded in open, competitive bidding. Parsons Corp. of Pasadena and Fluor Corp. of Aliso Viejo are among those making bids.

But Wednesday, corps spokesman Bob Faletti said there might not be enough emergency repair work to merit additional contracts. The main reason the corps was accepting bids for two new oil contracts, he said, was the possibility of more looting and sabotage.

"Otherwise, there might not be a lot of additional repairs needed," Faletti said.

Halliburton's competitors have watched in barely concealed frustration as the oil services giant got its foot in the door of an oil market that experts say ultimately will need tens of billions of dollars' worth of repairs. Now rivals are contemplating the possibility of the door slamming on them.

At best, the new contracts offer "bits and scraps," complained an oil executive who asked not to be identified.

One potential bidder, San Francisco-based Bechtel Group, said last week that it was dropping out. Bechtel, which has the biggest government contract for Iraq's civil reconstruction, said the new contracts were too small to bother with.

"The Army Corps of Engineers' final work plan for Iraqi oil services work details their intent to accelerate the transition of responsibilities to the Iraqi oil ministry, effectively minimizing the scope of any new contracts," Bechtel spokesman Howard Menaker said.

For future oil work, he added, Bechtel would apply directly to the ministry.

The Army Corps has identified 220 oil-related projects in Iraq. The list grew out of a meeting in Baghdad in early July attended by the corps, the Coalition Provisional Authority, the Iraqi Ministry of Oil and Kellogg Brown & Root, the Halliburton oil-field services division that has the Iraq contract.

Potential bidders say they first saw the list Aug. 1. "Halliburton had it almost a full month before anyone else had it," said one irked competitor who asked not to be identified.

The 220 projects were estimated to cost $1.114 billion. The work was divided into three phases, with Phase 1 expected to cost $716 million and to be completed by Sept. 30. Phase 2, worth $251 million, is due to be finished by Dec. 30.

If the corps does award contracts, there will be two, one for northern Iraq and one for southern Iraq, whose amounts are still to be determined. Winners are set to be announced by the end of October. That would leave any firm except Halliburton little time to gear up to meet the Phase 2 deadline.

Several engineering firms said they still intended to submit a bid, hoping less for immediate returns than to set themselves up for more work later.

"If you look at the oil industry in Iraq and its 20 to 25 years of neglect, there are certainly billions of dollars of opportunity in getting it up to speed -- and then more in expanding it," said Ron Oakley, chief of the government contract business for Fluor.

"Anytime our folks expend as much time and effort and energy into responding to a proposal as they have here, they go in it with the expectation of winning," Oakley added. "Anything less than that is a disappointment."

Parsons also is looking to the long term.

"This contract would be an important strategic win," spokeswoman Erin Kuhlman said. "It would let us extend our presence in the region."

Foster Wheeler Inc., based in Perryville, N.J., is also expected to bid but declined to comment because it is in a regulatory quiet period.

Halliburton declined to confirm that it was bidding, saying only that it was "considering the opportunity."

Before becoming vice president, Dick Cheney was Halliburton's chief executive. That prompted allegations of favoritism relating to the no-bid contract that was publicly disclosed March 24, just as the war was beginning.

Corps officials defended the manner in which the contract was awarded, saying secrecy and speed were essential because then-Iraqi President Saddam Hussein was expected to torch hundreds of oil wells. As it turned out, only a few wells were set on fire, and Halliburton's mission quickly transformed into evaluating the wreckage caused by the war and by looters.

Faletti, the Army Corps of Engineers spokesman, acknowledged that Halliburton's work over the last four months gave it a leg up.

"Our evaluation teams have been given instructions that will reduce that advantage," he said.

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