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Federal audit rips Iraqi reconstruction work

A new federal audit released Wednesday found that a U.S. construction giant that contracted for Iraq failed to complete a huge chunk of its work.
/ Source: NBC News Investigative Unit

U.S. construction giant Bechtel National Inc. arrived in Iraq in 2003, on the heels of U.S. troops, with a fat contract awarded by the U.S. Agency for International Development to rebuild the country.

Then in 2004 the company won a second contract, worth a potential $1.8 billion. Wearing white construction helmets labeled "Bechtel," the company's construction supervisors oversaw work on hospitals, schools and bridges, and tried to get the water flowing and the electricity turned on.

A new federal audit released Wednesday, however, found that a big chunk of Bechtel's reconstruction work for USAID, the federal agency that issued the contract, was never achieved on the second contract. Auditors checked the 24 jobs Bechtel was supposed to complete.

"Ten did not achieve their original objectives," the auditors found. In another three projects, "we were either unable to determine what the original objectives were or the achievements were unclear."

The cost to American taxpayers for unfinished efforts was high: the U.S. government approved a total of $180 million dollars in payments for Bechtel’s ten allegedly unfinished projects. They include a $24 million water treatment plant in Baghdad's impoverished Sadr City, a $26 million children's hospital in Basra and a $4 million Baghdad landfill that was never built

"The Bechtel audit is emblematic of the reconstruction problems in Iraq," said Stuart Bowen, Special Inspector General for Iraq Reconstruction, whose office conducted the audit.

Mark Tokala, an official at the U.S. Embassy in Baghdad, characterized the audit's findings of unfinished projects as "a success rate of less than 42 percent."

'Limited' oversight
USAID also was cited in the audit for its "limited" oversight of Bechtel's work.

The audit said "USAID had only two people directly involved in the contract administration of the Phase II contract — the administrative contracting officer and the cognizant technical officer."

In addition, USAID had little time to check Bechtel's invoices, the auditors said, since the agency "had agreed in its contract with Bechtel to review and pay Bechtel's vouchers within 10 days of submittal." Indeed, auditors found that in one case Bechtel was paid within two days of submitting an $11 million voucher, giving USAID almost no time to check the bills that the company was submitting.

Another issue was that a large chunk of the federal funds didn't go to work directly on projects but on "support costs," like fees and security. The audit found that only 59 percent actually went to construction, with the rest paid to Bechtel for security and fees.

The Bechtel contract was called the "Phase II Iraq Reconstruction Contract." While it was supposed to have a ceiling of $1.8 billion, it ended up less than that as jobs were cancelled and reassigned. The actual costs came to about $1.3 billion. 

Bechtel, USAID disagree with findings
USAID disagreed with many of the findings in the report. Bechtel spokesman Jonathan Marshall told NBC News that "there is almost nothing in the audit that is critical of Bechtel's performance."

Marshall added that often when the original objectives were not achieved, that was because of decisions made by USAID — not Bechtel. "It is unfair to consider that a critique of Bechtel's work," he said.

Frederick Barton, who examines reconstruction for Center for Strategic and International Studies, a Washington, D.C., think tank, said in an interview that the government may not have been honestly appraising the chances for success from the beginning. 

"It just sort of galls you," he said. "At the very least someone should have said, we are going to throw money at the problem and fifty percent may not get done. The U.S. government pretended they would be able to complete these things, but someone must have known. It's a big shell game," Barton said, "but its an expensive shell game."