Investigators: Millions in Iraq Contracts Never Finished

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By Hope Yen

Millions of dollars of lucrative Iraq reconstruction contracts were never finished because of excessive delays, poor performance or other factors, including failed projects that are being falsely described by the U.S. government as complete, federal investigators say.

The audit released Sunday by Stuart Bowen Jr., the special inspector general for Iraq reconstruction, provides the latest snapshot of an uneven reconstruction effort that has cost U.S. taxpayers more than $100 billion. It also comes as several lawmakers have said they want the Iraqis to pick up more of the cost of reconstruction.

The special IG's review of 47,321 reconstruction projects worth billions of dollars found that at least 855 contracts were terminated by U.S. officials before their completion, primarily because of unforeseen factors such as violence and excessive costs. About 112 of those agreements were ended specifically because of the contractors' actual or anticipated poor performance.

In addition, the audit said many reconstruction projects were being described as complete or otherwise successful when they were not. In one case, the U.S. Agency for International Development contracted with Bechtel Corp. in 2004 to construct a $50 million children's hospital in Basra, only to "essentially terminate" the project in 2006 because of monthslong delays.

But rather than terminate the project, U.S. officials modified the contract to change the scope of the work. As a result, a U.S. database of Iraq reconstruction contracts shows the project as complete "when in fact the hospital was only 35 percent complete when work was stopped," said investigators in describing the practice of "descoping" as frequent.

"Descoping is an appropriate process but does mask problem projects to the extent they occur," the audit states.

Responding, USAID in the report said it disagreed that its descoping of the hospital project was "effectively a contract termination," but that it had changed the work because of escalating costs and security problems. Mark Tokola, the director of the Iraq transition assistance office, also responded that the database the IG's office reviewed of Iraq reconstruction contracts was incomplete.

Bowen's office said its review was preliminary and that it planned follow-up reviews to investigate descoping more closely. Investigators said they were also looking into whether contractors whose projects were terminated by the U.S. government due to inadequate performance might have been awarded new contracts later despite their poor records.

Investigators said the database they reviewed lacked full data on projects such as those done by USAID, the State Department, and those completed before 2006. But they said the figures cited in the report offered a baseline in terms of unfinished Iraq reconstruction contracts.

"Adding contract terminations from these (other) sources would certainly raise the number of terminated projects," the report states.

The audit comes amid renewed focus in recent months on potential abuse in contracting government-wide, such as Iraq reconstruction. Last year, congressional investigators said as much as $10 billion - or one in six dollars - charged by U.S. contractors for Iraq reconstruction were questionable or unsupported, and warned that significantly more taxpayer money was at risk.

In recent weeks, Sen. Ben Nelson, D-Neb., has been working with Sen. Evan Bayh, D-Ind., and Susan Collins, R-Maine, on legislation that would restrict future reconstruction dollars to loans instead of grants; require that Baghdad pay for fuel used by American troops and take over U.S. payments to predominantly Sunni fighters in the Awakening movement.

Danielle Brian, executive director of the watchdog group Project on Government Oversight, said the latest audit report points to significant U.S. taxpayer waste in current reconstruction efforts.

"The report paints a depressing picture of money being poured into failed Iraq reconstruction projects - contractors are killed, projects are blown up just before being completed, or the contractor just stops doing the work," she said.