A reconstruction contract for the building of 142 primary health centers across Iraq has run out of money, after two years and roughly $200 million, with no more than 20 clinics now expected to be completed, the U.S. Army Corps of Engineers says.
The contract, awarded to U.S. construction giant Parsons Inc. in the flush, early days of reconstruction in Iraq, was expected to lay the foundation of a modern health care system for the country, putting quality medical care within reach of all Iraqis.
Parsons, according to the Corps, will walk away from more than 120 clinics that on average are two-thirds finished. Auditors say its failure serves as a warning for other U.S. reconstruction efforts due to be completed this year.
Brig. Gen. William McCoy, the Army Corps commander overseeing reconstruction in Iraq, said he still hoped to complete all 142 clinics as promised and was seeking emergency funds from the U.S. military and foreign donors. "I'm fairly confident," McCoy said.
Coming with little public warning, the 86 percent shortfall of completions dismayed the World Health Organization's representative for Iraq. "That's not good. That's shocking," Naeema al-Gasseer said by telephone from Cairo. "We're not sending the right message here. That's affecting people's expectations and people's trust, I must say."
At the end of 2006, the $18.4 billion that Washington has allocated for Iraq's reconstruction runs out. All remaining projects in the U.S. reconstruction program, including electricity, water, sewer, health care and the justice system, are due for completion. As a result, the next nine months are crunchtime for the easy-term contracts that were awarded to American contractors early on, before surging violence drove up security costs and idled workers.
Stuart Bowen, the top U.S. auditor for reconstruction, warned in a telephone interview from Washington that other reconstruction efforts may fall short like Parsons'. "I've been consumed for a year with the fear we would run out of money to finish projects," said Bowen, the inspector general for reconstruction in Iraq.
Largest such American effort since World War II
The reconstruction campaign in Iraq is the largest such American undertaking since World War II. The rebuilding efforts have remained a point of pride for American troops and leaders as they struggle with an insurgency and now Shiite Muslim militias and escalating sectarian conflict.
The Corps of Engineers says the campaign so far has renovated or built 3,000 schools, upgraded 13 hospitals and created hundreds of border forts and police stations. Major projects this summer, the Corps says, should noticeably improve electricity and other basic services, which have fallen below pre-war levels despite the billions of dollars that the United States already has expended toward reconstruction here.
Violence for which the United States failed to plan has consumed up to half the $18.4 billion through higher costs to guard project sites and workers and through direct shifts of billions of dollars to build Iraq's police and military.
In January, Bowen's office calculated the American reconstruction effort would be able to finish only 300 of 425 promised electricity projects and 49 of 136 water and sanitation projects.
U.S. authorities say they made a special effort to preserve the more than $700 million of work for Iraq's health care system, which had fallen into decay after two decades of war and international sanctions.
Doctors in Baghdad's hospitals still cite dirty water as one of the major killers of infants. The city's hospitals place medically troubled newborns two to an incubator, when incubators work at all.
Early in the occupation, U.S. officials mapped out the construction of 300 primary-care clinics, said Gasseer, the WHO official. In addition to spreading basic health care beyond the major cities into small towns, the clinics were meant to provide training for Iraq's medical professionals. "Overall, they were considered vital," she said.
In April 2004, the project was awarded to Parsons Inc. of Pasadena, Calif., a leading construction firm in domestic and international markets. McCoy, the Corps of Engineers commander, said Parsons has been awarded about $1 billion in reconstruction projects in Iraq.
Like much U.S. government work in 2003 and 2004, the contract was awarded on terms known as "cost-plus," Parsons said, meaning that the company could bill the government for its actual cost, rather than a cost agreed to at the start, and add a profit margin. The deal was also classified as "design-build," in which the contractor oversees the project from design to completion.
These terms, among the most generous possible for contractors, were meant to encourage companies to undertake projects in a dangerous environment and complete them quickly.
McCoy said Parsons subcontracted the clinics to four main Iraqi companies, which often hired local firms to do the actual construction, creating several tiers of overhead costs.
Soaring security costs
Starting in 2004, the need for security sent costs soaring. Insurgent attacks forced companies to organize mini-militias to guard employees and sites; work often was idled when sites were judged to be too dangerous. Western contractors often were reduced to monitoring work sites by photographs, Parsons officials said.
"Security degenerated from the beginning. The expectations on the part of Parsons and the U.S. government was we would have a very benign construction environment, like building a clinic in Falls Church," said Earnest Robbins, senior vice president for the international division of Parsons in Fairfax, Va. Difficulty choosing sites for the clinics also delayed work, Robbins said.
Faced with a growing insurgency, U.S. authorities in 2004 took funding away from many projects to put it into building up Iraqi security forces.
"During that period, very little actual project work, dirt-turning, was being done," Bowen said. At the same time, "we were paying large overhead for contractors to remain in-country." Overhead has consumed 40 percent to 50 percent of the clinic project's budget, McCoy said.
In 2005, plans were scaled back to build 142 primary clinics by December of that year, an extended deadline. By December, however, only four had been completed, reconstruction officials said. Two more were finished weeks later. With the money almost all gone, the Corps of Engineers and Parsons reached what both sides described as a negotiated settlement under which Parsons would try to finish 14 more clinics by early April and then leave the project.
The agreement stipulated that the contract was terminated by consensus, not for cause, the Corps and Parsons said.
Both said the Corps had wanted to cancel the contract outright, and McCoy rejected the reasons that Parsons put forward for the slow progress.
"In the time they completed 45 projects, I completed 500 projects," he said. Parsons has a number of other contracts in Baghdad, from oil-facility upgrades to border forts to prisons. "The fact is it is hard, but there are companies over here that are doing it."
Bowen called the outcome "a worst-case scenario. I think it's an anomaly." He said, however, that U.S. reconstruction overseers overwhelmingly have neglected to keep running track of the remaining costs of each project, leaving it unclear until the end whether the costs are equal to the budget.
"I can't say this isn't going to happen again, because we really haven't gotten a grasp" of the cost of finishing the many pending projects, Bowen said.