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Builders Look at Iraq Project as Open Door

Amid criticism about the secret process, companies bid for a $600-million contract, hoping for much bigger deals to come.

March 31, 2003|David Streitfeld, Nancy Cleeland and Mark Fineman | Times Staff Writers

Contractors naturally think big.

Bechtel Group Inc. is working on a $1.7-billion aluminum smelter in Bahrain. Parsons Corp. is building a city for 200,000 in the Arabian desert. Fluor Corp. has a $1.3-billion agreement to develop oil fields in Kazakhstan.

For these behemoths, a $600-million deal is hardly worth breaking a sweat over. Yet when the U.S. Agency for International Development asked the three California companies whether they wanted to bid on a project on the other side of the world, all of them jumped at the chance to write proposals on a tight deadline.

The reason: No one wanted to miss out on the chance to be the first to rebuild Iraq. As the corporate giants well know, the $600 million is merely the initial installment of what promises to be a much bigger sum.

"A $600-million contract could easily turn into a couple of billion," said Charles Tiefer, a former deputy general counsel of the House of Representatives. "Pretty soon, it would be real money."

The contract, moreover, is "cost-plus-fee." The contractor will be reimbursed for its bills by the government, plus a set profit.

"Every sane contractor regards cost-plus-fee contracts as bonanzas," said Tiefer, a professor of government contract law at the University of Baltimore. "They can't lose, since they're guaranteed their costs."

There also are intangible reasons a contractor would want to get this first contract, which will be awarded this week. The first contractors on the ground will have the best access to facilities, interpreters and transportation -- crucial things for operating in postwar Iraq.

"Once you're there, if you've done well, that does give you a leg up," said Allan Burman, a consultant and former administrator of the Office of Federal Procurement Policy.

The bidding has been beset by controversy since its existence was revealed three weeks ago.

Foreign companies and their governments were incensed that they weren't allowed to bid. Procurement experts wondered whether USAID, which is used to giving relatively small grants, would be overwhelmed by administering billions in contracts. Critics said the bidding was cloaked in unusual secrecy -- something they found particularly worrisome given the strong ties of some of the bidders to the Republican Party and the Bush administration.

"The usual standard is full and open competition," said Steven Schooner, co-director of the government procurement law program at George Washington University. "When the government operates in secret, people assume it has something to hide."

USAID administrator Andrew S. Natsios testified before Congress last week that secrecy was necessary because bidders had to look at "top secret" documents.


The Project

The list of things that USAID expects the construction contractors to do is detailed and comprehensive, a significant part of an effort by the United States to win the endorsement of 24 million Iraqis by giving them a new and improved country. Among them:

* Reconstruct, repair, rehabilitate and upgrade more than 2,000 miles of roads, 100 bridges and 600 miles of irrigation or drainage canals.

* Rehabilitate one "referral" hospital in each major city and up to 100 general hospitals throughout the country.

* Repair 6,000 school buildings.

* Get the railway system rolling again.

* Repair and maintain five airports and the port of Umm al Qasr.

* Repair 45 urban water systems while establishing environmentally sound solid waste disposal.

* Rehabilitate 10 electrical generating plants and as many as 110 substations.

The scale of the work astonishes experts who have examined the plans.

"We are embarking on a very aggressive effort, both figuratively and literally, at nation-building far, far bigger than anything we have seen since the Marshall Plan," said Steven Kelman, a professor of public management at Harvard's John F. Kennedy School of Government.

The Marshall Plan, which gave aid over four years to 16 European countries devastated by World War II, cost about $97 billion in current dollars. Much of the money was used to buy such commodities as feed, fertilizer and fuel from U.S. suppliers.

USAID clearly recognizes that there is a gap between its pocketbook and its goal of creating "the fundamental structures" for democracy and economic growth in Iraq.

"Six hundred million dollars is not going to rebuild the infrastructure of that country," Natsios acknowledged last week.

Under the war budget request President Bush sent to Congress last week, USAID would receive $2.4 billion for humanitarian and reconstruction aid.

Aside from the construction project, the agency has been soliciting bids on restoring Iraq's public health service, administering its airports, printing textbooks and training teachers.

George Washington's Schooner estimated that the final bill for resurrecting and improving the Iraqi infrastructure would be roughly equivalent to the operating budget of a state with a comparable population: Texas, with 22 million people, has a budget of $57 billion.

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