updated 10/22/2009 3:39:31 PM ET 2009-10-22T19:39:31

The State Department's internal watchdog called Thursday for officials to demand a rebate of more than $132 million from a company that built the massive new U.S. Embassy in Baghdad to make up for shoddy work.

In a report, the department's inspector general said First Kuwaiti Trading & Contracting Co. should be required to pay back roughly a quarter of the $470 million it was awarded by State to build the sprawling embassy. More than $730 million was spent on the embassy — the largest U.S. diplomatic mission in the world.

The report also took issue with the State Department's oversight of work at the 104-acre compound, which has fortified working space for 1,000 people and living quarters for several hundred.

"We found that the quality of the (embassy) construction was significantly deficient in multiple areas," the inspector general said.

‘Construction deficiencies’
The report called construction of the compound in a war zone in 34 months a "significant achievement," but said "considerable construction deficiencies remained because designs for the facilities had not been completed and approved and quality control and commissioning procedures were inadequate."

It said the State Department should seek to recover the money due to construction deficiencies, incomplete and undocumented design work, damages and continuing maintenance costs associated with those issues.

Construction of the embassy, which was finished in April 2008 months after its planned September 2007 completion, was beset by building, logistical and security hitches that caused major delays. The inspector general's report was sent to Congress on Wednesday.

In October 2007, the State Department conceded that a host of problems, including major malfunctions in the complex's physical plant, including electrical and water distribution systems, would push back the embassy opening at least until this spring. Some of those problems recurred.

As the deficiencies emerged, many of them were blamed on First Kuwaiti, which was hired to build the embassy for $592 million. Changes to the original design later pushed the cost up by $144 million.

First Kuwaiti has been accused of tricking foreign laborers into working on the embassy, mistreating them and paying $200,000 in kickbacks in return for two unrelated Army contracts in Iraq. The company denies the charges, which have never been proved.

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