The business of rebuilding Iraq

Now the war with Iraq is over, and minds turn to reconstruction, Abigail Rayner discovers a general unease in the methods used to grant the rebuilding contracts... methods that many believe do little to enhance the reputation of President Bush and US corporate governance

When a US construction giant was awarded a $680m contract that appointed it chief architect in the rebuilding of Iraq it spawned a thousand conspiracy theories.

The major point at issue is the lack of an open bidding process. A few companies, handpicked by The US Agency for International Development, were considered before the contract was handed to Bechtel, the biggest contractor in the US. Bechtel will take the lead in rebuilding major roads, airports, hospitals and schools as well as its water and electrical supplies.

The award prompted Senator Ron Wyden of Oregon to sponsor a Bill to force the public disclosure of contracts for rebuilding Iraq.

'I think it is a troubling pattern,' he says. 'They have kept the public in the dark and Congress ought to act quickly to shed some light on this matter.'

The General Accounting Office, the investigative arm of Congress, has launched an inquiry into why the contract, the first of eight, but by far the largest, was not openly up for grabs.

It doesn't take an investigation to uncover Bechtel's numerous links to the Bush administration.

George Shultz quit as Richard Nixon's Treasury secretary to become President of Bechtel. He returned to Government office in 1982 as Ronald Reagan's secretary of state. Presently, he sits on Bechtel's board.

Jack Sheehan, a former Marine Corps general, is a senior Vice President at Bechtel and a member of a Government advisory body called the Defense Policy Group.

Richard Perle sits on the Bechtel board. He stepped down as chairman of the DPG board earlier this year amid accusations of a conflict of interest but he remains a member of the board.

Bechtel even has links to the bin Laden family. The bin Ladens have a large stake in a company called the Fremont Group, formerly 'Bechtel Investments', which was owned by Bechtel until 1986. The group's website boasts of its still close relationship with Bechtel. Shultz is a director of Fremont.

Bechtel is a leading campaign contributor to both the Republican and Democrat parties and has donated a total of $1.3m to both sides since 1999, according to The Federal Election Commission.

All this provides a fertile breeding ground for conspiracy theories.

The Government says that it did not have time for an open bidding process, which it said could take six months. It argues that humanitarian concerns required that it acted fast. The closed bidding contest took 63 days.

President Bush's $80bn war chest has been amended to include $4m for USAID's inspector-general to monitor and audit money spent in Iraq.

Michael Garvin, assistant professor of civil engineering at Columbia University, acknowledges the need for haste, for the sake of the Iraqi people, many of whom are still without power and water. Indeed, the World Health Organisation recently reported an outbreak of cholera from a contaminated water system that was damaged in the US and UK bombing raids on Iraq. Nonetheless, he doesn't think an open bidding process would have been problematic.

'I think the Government could have done things very differently - I don't see why they couldn't have put out a list of their requirements, solicited bids and come up with a shortlist. That wouldn't have taken very long.'

He also takes issue with the Government's argument that Bechtel was picked because of its outstanding capabilities, arguing that, while they cannot be doubted, there are at least a dozen other companies which could have done the job.

Other experts suggest the Government move was more of a boob than an effort for it and its pals to cash in on the war.

'I don't buy any of that. The awards are made by career civil servants, not people appointed by elected officials. The permanent staff is not politically motivated,' said Steven Schooner, a professor at the George Washington University Law School who specialises in federal procurement law.

The people at USAID, who are choosing contractors, don't change with the administration. Further, most corporations of Bechtel's size make considerable contributions to Government. In addition, a $600m contract is a drop in the bucket to a company of Bechtel's size.

It could be that the Government's choice of agency to handle this titanic project was their first mistake. USAID was chosen to do a job that would naturally have fallen to the Army Corps of Engineers, a larger, more experienced unit. USAID is a tiny agency that typically handles about $2bn in procurement work a year.

'I suppose the Government thought that it would send the wrong message, having the US army running the reconstruction. But this has made things worse,' adds Schooner.

Another problem which has arisen from the decision to use USAID is that it has a policy of excluding foreign competition, unlike the Army Corp. The policy is not usually a problem, given the agency's small size.

In this case, however, it has prevented the US from taking advantage of a chance to mend ties with foreign nations, not least the Iraqi people, at a crucial time.

'After the Government acted unilaterally in the war, people wanted to ameliorate relations. Sharing the contracts would have presented an excellent opportunity for that,' says Schooner.

To make matters worse, a unit of Halliburton, the oil company that Vice President Dick Cheney formerly worked for, was granted a contract before the war even began, to extinguish oil fires in Iraq. Recently, it emerged that Kellogg, Brown & Root's contract also included distributing oil.

Experts believe that contract, which was not subject to open bidding, could be worth up to $7bn.

Whether or not the contract granting process is open to criticism, or merely appears that way, one thing is certain: it does little to improve President Bush's international profile as an isolationist or the perception that he is using the war to enrich his friends in corporations. After a year in which America has become hyper-sensitive to corruption following a barrage of corporate sleaze, appearances can make or break a career. As chief executive of America Inc, Bush will have to do better.

Abigail Rayner is New York correspondent for The Times (of London).