New Report Finds Problems with Iraq Contracts

Mon Jun 14, 8:00 PM ET By Sue Pleming

WASHINGTON (Reuters) - The handing out of some early no-competition work to rebuild Iraq was flawed and U.S. government agencies failed in several instances to comply with procurement laws, said a new government report on Monday.

The General Accounting Office said while agencies generally complied with applicable laws, the Bush administration violated requirements when it issued some "task orders" for work in Iraq under contracts the government already had with companies.

The report, to be discussed at a hearing on Capitol Hill on Tuesday, found instances where contracting officers issued work that was not within the scope of these existing contracts.

For example, Halliburton unit Kellogg Brown and Root was asked to do contingency planning for Iraq's oil infrastructure under a logistics deal it had with the U.S. Army, a task the GAO said likely overstepped competition laws.

Task orders are deemed by law to satisfy competition requirements if they are within the scope, period and performance of the original contract, which the GAO said was not the case with KBR's contingency planning.

The plan drawn up by KBR ultimately led to the company getting a no-bid contract with a ceiling value of $7 billion for Iraq's oil infrastructure.

The report said this sole source deal was properly awarded and the defense department had provided adequate justification to show the company was the only source to do the job.

The report also questioned whether task orders for logistical support to the U.S.-led Coalition Provisional Authority in Iraq, worth about $204 million, and for training the new Iraqi Army were within the scope of KBR's original deal.

"We remain convinced of our conclusion and emphasize the need for more analytical rigor in the review of the LOGCAP task orders," said the report, referring to KBR's logistical contract.

The report also criticized the handling of work given to three companies with contracts with U.S. Central Command -- construction giants Washington Group International Inc Fluor and Perini

These contracts initially had a maximum value of $100 million each but in August 2003, the Army increased the value to $500 million each for work in Iraq.

In addition, two work orders with defense contractor Science Applications International Corporation, one for an Iraqi media project worth about $81 million and a smaller one to recruit people identified as defense experts, were beyond the scope of what they were intended.

The defense department said in its response to the report that it was taking appropriate actions and resolving outstanding issues.

The report urged the Army and its contractors to agree on key terms and conditions on nearly $1.8 billion worth of reconstruction work that had either been completed or was well under way.

"Until contract terms are defined, cost risks for the government remain and contract cost control incentives are likely to be less effective," said the report.

The GAO report is one of several to be rolled out in the coming months on Iraq contracts. This report just looked at contracts handed out as of September, 2003.