Divvying up the Iraq Pie

By Stephen Pizzo, misleader.com. Posted October 7, 2003.

Editor's Note: The following report is a detailed breakdown of the small group of individuals and companies that are reaping the benefits of the Iraq war reconstruction.

The Wall Street Journal describes it as "the largest government reconstruction effort since Americans helped to rebuild Germany and Japan after World War II." Just how much the rebuilding of Iraq will cost American taxpayers is a figure still too elusive to capture. But the President's request for an additional $87 billion in September, atop the $3.7 billion a month we are already spending, indicates the final figure will be, as one pundit described it, quite "an adult number." Recent estimates now put the final figure somewhere between $200 billion to as much as half a trillion dollars over the next ten years.

America's Iraq-sticker-shock may turn to anger when taxpayers discover the small group of men and companies reaping the benefits of President Bush's newly found appreciation for nation building. While Vice President Dick Cheney's company, Halliburton, has attracted most of press attention for its Iraq-related contracts, Halliburton is hardly the whole story. Halliburton's share is but a slice of multi-billion dollar pie being divided up among a brotherhood of unusually well connected and economically related individuals and entities.

Science Applications International, Inc. (SAIC)
San Diego California

The Associated Press describes Science Applications International Inc. (SAIC) as "the most influential company most people have never heard of." The Asia Times calls it "the most mysterious and feared of the big 10 defense giants."

SAIC ranks among the top ten companies receiving defense contracts. Founded in 1969 by former Los Alamos physicist, Dr. J.R. Beyster, the company is the largest employee-owned company in the nation. The company boosts in excess of $6 billion in annual revenues and 30,000 employees worldwide. Employees are encouraged to buy shares in the company and are allowed to sell them to one another once a year at prices set by the company's auditor. If they leave the company they are required to sell their shares back to the company.

SAIC might best be described as "the-company-of-what's-happening-now" in defense and intelligence. If it's important and it's happening, it's likely that SAIC has piece of the action. The company's ranks overflow with former or retired government person, many from the military and intelligence agencies. Much of SAIC's work is highly classified.

At any given point in time, SAIC's board of directors represents a Who's Who of former military and intelligence officials. Retired Admiral Bobby Inman has been a fixture on SAIC's board of directors for years. Inman served as Director of Naval Intelligence, Vice Director of the Defense Intelligence Agency, Director of the National Security Agency, and finally Deputy Director of Central Intelligence.

SAIC's board changes to reflect the politics of the time. Gone from SAIC's board are directors with expertise in Cold War and Iran/Contra eras like former Nixon Defense Secretary Melvin Laird, Ex-CIA Director Robert Gates, Secretary of Defense William Perry, and former CIA Director John Deutch.

They have been replaced by people with more timely contacts, such as SAIC director Gen. Wayne Downing, (US Army retired.) Before the war Downing served as a lobbyist for the US-backed Iraqi National Congress and its head, Ahmad Chalabi. Downing (along with Bechtel director George Shultz) also served on the board of the Committee for the Liberation of Iraq.

Long before the shooting began SAIC was already at work on Iraq. The trail of contracts begins with William Owens, another former high-level military officer who sits on the boards of five companies that received millions in defense contracts last year. Owens also served as president, chief operating officer and vice chair of SAIC. And, Owens is a member of Defense Secretary Donald Rumsfeld's internal think-tank, the Defense Policy Board.

Noteworthy: In 1995 the company was ordered to pay a $2.5 million fine after a whistleblower charged SAIC had cheated the Air Force on a contract to develop jet fighter cockpit displays. (Hollis v SAIC, #93-CV-390)

To say the Defense Policy Board's membership tips to the right would not be an overstatement. Among its members; Ken Adelman (who made the rounds of network talk shows assuring Americans a war in Iraq would be "a cake walk,") Newt Gingrich, Richard Perle, Dan Quayle and Bechtel senior vice president, retired Army General Jack Sheehan. The Center for Public Integrity reports that of the 30 DPB members nine have ties to companies that have won more than $76 billion in defense contracts last year.

SAIC's Iraq contacts (at least those not classified) appear to begin some time in February 2003, nearly two months before the war, when the Pentagon formed the Iraqi Reconstruction and Development Council (IRDC). Initially based in Virginia the group was composed of a hastily assembled group of Iraqi dissidents. The IRDC was the first attempt to "put an Iraqi face" on the US's postwar administration of Iraq. While it had an Iraqi face, the IRDC had an American paymaster - SAIC. IRDC members were on the SAIC payroll. (Ref. Middle East Conference)

Today IRDC members hold key positions at each of the two-dozen Iraqi ministries.

Another of SAIC's operations did not go quite as smoothly. In mid-April the Pentagon launched the "Iraqi Indigenous Media Netorwork" (IMN). SAIC was hired to oversee the project. The company hired former Voice of America director Robert Reilly to direct the new network. Reilly's conservative views were well known. During the Reagan administration Reilly headed the White House information operation backing the Nicaraguan Contras. (Ref: BBC World Trust Audit Report)

But times had changed and Reilly's heavy-handed methods backfired. He lasted less than two months as IMN staffers walked out in disgust. "SAIC didn't have any suitable qualifications to run a media network," said Rohan Jayasekera, a media analyst for London-based Index on Censorship. The Washington Post reported that under SAIC's stewardship "Increasingly, the newscasts became irrelevant for Iraqis.

"Saddam Hussein is doing better at marketing himself through al-Jazeera and al-Arabiya," said Ahamad Rikabi, a highly regarded Iraqi brought in to help manage the project who later resigned in protest.

Just how much other of the Iraq-reconstruction pie SAIC has cornered is impossible to determine. Some of the work is done under subcontracts with other prime contractors. Other work is classified secret. But a look at the company's web site showed SAIC job openings in communications, engineers, protection security analysts, database techs, recruiters and personnel screeners, and movement control team leaders. All required a "secret" security clearance.

Noteworthy: Some of SAIC's work comes through sub-contracts with defense firm, Vinnell Corp., a subsidiary of TRW. One of those contracts involves advising the Saudi Royal family on security matters. Vinnell is a leader in training foreign military forces to U.S. standards. Vinnell has been the contractor for training and modernization of the Saudi Arabian National Guard. It advertises for ex-soldiers able to train the Saudis in battalion operations, the Bradley fighting vehicle, anti-tank weapons and physical security to guard against terrorist attacks. (Ref: Global Research)

Noteworthy: In March the General Services Administration awarded SAIC the contract to upgrade the GSA with telecommunications systems. SAIC Telcordia Technologies subsidiary was awarded the three-year contract (with five one-year options to renew). The company will provide voice, data, video, wireless and cable upgrades. The "Connections" contract was described as a "indefinit-delivery/indefinit-quality" contract. (Ref)

Finally, some SAIC trivia:

• SAIC's venture capital arm funded the development of software web-based collaboration software used by Halliburton and the US Navy "to create a secure collaborative environment for advanced materials development."



• In August the US Office of Force Transformation released a study that outlined what it had learned during Operation Iraqi Freedom. That report was prepared for the OFT by SAIC.



• Finally, there has been no small degree of hand wringing since the 2000 Florida vote-counting fiasco over well-connected companies getting contracts to design the new generation of computerized voting machines and the software that operates them. Diebold Election Systems, a leading builder of e-voting systems, has caused the biggest stir. Earlier this year a study by researchers at Johns Hopkins University reported what they called serious security flaws in Diebold's machines. The report concluded "Diebold's electronic voting system did not meet even the most minimal security standards. To quell fears that Diebold's machines can be programmed to spit out desired results the company hired SAIC to investigate.

Noteworthy: When former germ warfare scientist Dr. Steven Hatfill became "a person of interest" to the FBI following the October 2001 anthrax attacks, the feds did not have to look far to find him. At the time Hatfill was employed by SAIC where he was working on related projects. The company promptly fired Hatfill, who has still not been charged with anything. "Ironically, after they fired me," Hatfill said, "they had me come back to finish work on several projects I had going there at the time." (Ref: From a public statement issued by Dr. Hatfill.)

Baker-Hughes
Houston, Texas

Another company in on the early planning for a post-war Iraq was Houston oil services company, Baker-Hughes. In December 2002 the Council for Foreign Relations (CFR) joined with former Bush I administration Secretary of State, James Baker III to release an outline for rebuilding post-war Iraq entitled "Guiding Principles for U.S. Post-Conflict in Iraq." (Full report)

The committee that conducted the study was chaired by Edward P. Djerejian, a director of the James A. Baker III Institute for Public Policy. Djerejian is also a director and head of compensation committee for Baker-Hughes. Among the conclusions of the Baker Institute's report: "After two major wars and a decade of sanctions, Iraq's oil industry is in desperate need of repair and investment."

Even before the report was made public investors were already picking winners and losers. "On a longer-term basis, however, the (Iraqi oil) fields have been long neglected and are in need of repair. Two U.S. companies that are obvious beneficiaries are Halliburton (HAL), and Baker Hughes (BHI)." (Bull & Bear Investors Report)."

While Baker-Hughes was not among the first to bag contracts in Iraq, they are on the short list of those who will in the second, potentially more lucrative wave of contracts to rebuild and operate Iraq's oil fields. According to a recent report by petroleum industry publication, Platts Global Energy Report, Iraq, oil reserves will exceed the 300-bil barrels and over 110 trillion cubic feet of natural gas. With natural gas now fueling a growing number of US power plants and prices on the rise, Iraq's natural gas reserves may end up being the real prize.

Noteworthy: In March 1999 the Securities and Exchange Commission accused Baker-Hughes and its accounting firm, KPMG, of violating the Foreign Corrupt Practices Act of 1995. The SEC alleged that the two companies conspired to bribe foreign officials to gain contracts in Indonesia, Brazil and India, disguising the bribes in its SEC filings as normal business expenses. The company settled with the SEC in 2001. (Ref: SecMail)

Noteworthy: Following accounting scandals KMPG changed the name of its business-consulting arm to BearingPoint. BearingPoint has been granted a $76 million USAID contacts in Iraq to oversee and manage , "Economic Recovery, Reform and Sustained Growth in Iraq." (Ref: USAID.)

Noteworthy: In August the SEC opened an investigation into Baker-Hughes business practices in Nigeria, Angola and Kazakstan. The investigation stems from a March 2002 complaint alleging that the company had actively tried to bribe government officials. (Ref: Houston Business Journal)

Baker-Hughes 1 Year Stock Price



As we sorted through the relationships that brought Baker-Hughes to the table, we ran into a familiar name from earlier noteworthy events. Djerejian shared authorship of the Baker Institute report with Frank Wisner, Jr., a name that surfaced earlier among the ashes of Enron. Wisner was appointed to Enron's board of directors in 1997 and was a prime mover behind one of Enron's most notorious and controversial projects, the Dabhol Power project in Dabhol, India. (Ref: Corporate Watch)

Among those Wisner hired by Wisner to lobby India's leaders to back Enron's various projects was James Baker, III. But the power plant project blew up in Enron's face when India's press reported the terms of the contract, which allowed Enron to grossly overcharge its Indian clients for energy. When the deal erupted into a political scandal alleging bribery and influence peddling, India tried to cancel the contract, only to be confronted by intense political pressure from both Vice President Dick Cheney and National Security Advisor Condolezza Rice. Both Rice and Cheney pressured India to comply with the original terms of the contract, threatening negative consequences if it did not do so. (Enron's subsequent bankruptcy ended the project.)

Not every US company can boast such high-octane contract negotiators. But then, Frank Wisner Jr., is no ordinary corporate executive. He spent much of his adult life in upper echelons of government serving in a succession of posts; U.S. Ambassador to India, Under Secretary of Defense for Policy, Under Secretary of State for International Security, Ambassador to the Philippines, Ambassador to Egypt, Deputy Secretary for African Affairs and Ambassador to Zambia. (Wisner's father was a legendary CIA official running propaganda operations for the CIA in Eastern Europe from 1947 until his suicide in 1965.)

His brush with scandal left Wisner unscathed. He is now vice chairman of international insurance giant, AIG, which donated over $1 million to Republican candidates and the Republican Party during the 2002 election cycle and itself has an eye on post-war Iraq.

"In the long run, financial services institutions like AIG are very interested in the Iraq market," Wisner told reporters last month, "but we recognize there has to be a political authority, a regulatory environment. These rules do not today exist. When they do, we will come in."

Noteworthy: This September the Securities and Exchange Commission slapped AIG with one of the largest penalties in its history, $10 million. The commission accused AIG of conspiring in an accounting fraud to hide loses at a troubled cell phone company by providing a phony $12 million asset in return for a secret $100,000 fee and for providing false responses during the investigation. (Ref)

Fluor International Corp.
Aliso Viejo, California

Fluor may sound French but it's an all-American company now based in California but with roots in Houston, Texas. Fluor Corporation is one of the world's largest, publicly owned engineering, procurement, construction, and maintenance services organizations with deep involvement in military logics.

Fluor spokesman Jerry Holloway wouldn"t disclose the total potential value of the Iraq contracts when asked by reporters, but published reports have put the dollar figure at $900 million; one expert said it could easily go higher. (Ref)

Even before bagging nearly a billion dollars in Iraq contracts Fluor had already been enjoying tens of millions of dollars in contracts in Afghanistan.

While Fluor bills itself as an "environmental services company" environmentalists might differ. Fluor manages the government's Hanford Nuclear Reservation in Washington, one of the most heavily polluted sites in North America. Since Fluor took over the site in the mid-1990s, workers and local citizens have charged the company with cost cutting measures that have created potential environmental and health concerns. The company responded by firing whistleblowers and shutting down the Hanford Joint Council, a public forum established eight years ago to air employee and local government concerns over plant safety. (Ref: Gov. Accountability Project)

Noteworthy: On March 10 of this year, the United States Supreme Court rebuffed an effort by Fluor to block a suit by eleven Hanford pipe fitters who claimed they were either terminated or harassed for complaining about safety issues. The pipe fitters worked at the high-level nuclear waste tank farms at the Hanford Nuclear Site.

Fluor's Hanford contract was set to expire at the end of 2001 but the Department of Energy has extended Fluor Hanford's contract through 2006. The six-year contract is worth approximately $3.8 billion, with incentives for Fluor to earn up to about $168 million in profit. (Ref)

Noteworthy: In August lawyers in Sasolburg, South Africa filed a $1 billion claim against Fluor alleging the company discriminated against its black workers during apartheid. The suit, which the lawyers say will be filed in California courts, alleges that Fluor paid blacks less than whites and that the company helped repress black workers during a 1987 strike in which two strikers were killed. Plaintiffs' attorney Ed Fagan also charged Fluor aided apartheid by helping the country evade UN oil sanctions. The company has denied the accusations. (Ref)

But, like all other large defense contractors, sometimes it's just cheaper to pay a fine and move on to the next contract. In 1994 Fluor paid a $3.2 million fine for 'submitting heavily padded repair bills for work on Navy bases after hurricane Hugo; in 1997 it was charged with "violations of the False Claims Act" when the company sought government reimbursement. The company settled for $8.4 million; same year, it was charged with "failure to effectively complete corrective actions" on a DOE project and fined $10,000; in 1998 it was fined $140,625 for safety violations on a DOE project; in 1999 it was fined $30,000 for "multiple and recurring failure to adequately and fully implement Quality Assurance," on another DOE project. (Ref: Project on Gov. Oversight)

More recently, in May 2001, Fluor was charged with falsely claiming millions of dollars in costs on DoD contracts. The company settled for $8.5 million. And, in May 2002 Fluor was sued for $24 million for "numerous design and construction failures" at the Refugio Mine in northern Chile.

How do companies that get so much bad press also end up with fresh contracts like those being handed out now in Iraq?

When you look at the people at the top at Fluor you quickly see the kind of relationships that fuel such success. Peter J. Fluor, age 56, is the company's "Lead Independent Director." Flour has also chaired the company's compensation committee and served as CEO of Texas Crude Energy, Inc., an international oil and gas exploration and production company headquartered in Houston, Texas.

Fluor also is a director of Ocean Energy, Inc. headquartered in Houston. Ocean Energy, now part of Devon Energy, is also on the list of companies contracted for work in Iraq. And in August of this year Devon Energy -- described by the Houston Business Journal as "a small Houston exploration company" hit pay dirt by signing the first US oil contract with Syria in 15 years. The contract was for wells along the Syrian/Iraqi border, prompting the Houston Business Journal to describe the contract as "a stepping stone to an even bigger bonanza" in Iraq.

Noteworthy: In 1998 Halliburton/KRB and Fluor joined forces under the name Arctic Pacific Contractors to provide oil field services to Russia in developing the potentially oil and gas-rich Sakhalin oil fields.

"Fluor continues to focus on reconstruction efforts in post conflict Iraq and Afghanistan," the company said. "While the release of actual work programs has slowed due to stabilization and security issues, Fluor remains confident that it will be a key participant in helping with overall reconstruction efforts."

Noteworthy: Devon Energy's CEO, Larry Nichols, in turn, sits on the board of Baker-Hughes. Devon's chief operating officer, Larry Hackett, (listed at #34 on Houston's highest compensated executives,) sits on Fluor's board of directors and on the board of oil concern Temple-Inland. SAIC board member Bobby Inman also holds seats on Fluor's board of directors and compensations committee and Temple-Inland.

Flour's 1-Year Stock Price



Computer Sciences Corp
El Segundo, Calif.

DynCorp
Reston, Virginia

DynCorp Aerospace Operations (UK) Ltd., (a subsidiary of Computer Sciences Corporation) was awarded a $50 million contract to train police and security personnel in Iraq -- though the open-ended nature of the contract could boost it to half a billion dollars over time. By last year Dyncorp, headquartered in Reston, Virginia, was the nation's 13th largest military contractor with $2.3 billion in revenue. The company ranked #13 on the 2002 list of top defense contractors. (CSC ranked #21.)

Noteworthy: In 1994 DynCorp was caught removing parts from damaged aircraft and installing them on other aircraft delivered to the US Navy. The company settled for $1.6 million. (Ref: Project on Gov. Oversight)

DynCorp has a colorful history, so much so that its company's employees are often featured in Soldier of Fortune and American Legion Magazines. Tapped by the US to provide police training and security services in post-war Bosnia, the company became embroiled in allegations that its employees were running a sex-slave ring exploiting under-age girls. In 2002 Kathryn Bolkovac, a former U.N. International Police Force monitor under contract to DynCorp, brought charges in London against the company for wrongful termination after she was fired for reporting that DynCorp police officers were participating in sex trafficking. The court ruled in Bolkovac's favor awarding her damages of nearly $200,000. (Ref)

A second DynCorp employee filed suit alleging the same, but this time in Texas. DynCorp settled with him out of court just before the trial was to start. (In June of 2002 Salon Magazine published a two-part expose on two cases entitled "Outside the Law.")

DynCorp employees also serve on the frontlines of the US war on drugs. Under a contract to the Defense Department the company maintains over 300 employees and operates 88 aircraft flying drug eradication missions over Columbia. In 2001 a group of Ecuadorian farmers filed suit against the company alleging that its pilots have sprayed their crops, cattle and in several cases their children, resulting in both illness and death. The State Department intervened on behalf of the company in the case, citing national 'security concerns." (Ref)

Noteworthy: In October 1990 CSC was charged with defense procurement fraud. The company settled the case by paying a $1.7 million fine. In 1993 CSC was charged with making false and misleading statements and over-billing the federal government on a major EPA contract. The company paid $2.1 million that time. In July 2000 CSC was charged by Defense Criminal Investigative Service, which alleged that CSC employees attended college classes while their time was being billed against a defense contract. The company settled for $8,730. And, in October 2000 CSC was again charged with procurement fraud and settled for $1.75 million. (Ref: Project on Gov. Oversight)

Noteworthy: In 2001 Computer Science Corp. of California was awarded a 10-year $2.5 billion contract to take over technology services for the super-secret National Security Agency making 1,000 NSA employees Computer Science employees in the biggest outsourcing arrangement ever for a federal agency. (Ref)

In Afghanistan DynCorp security forces provide protection for Afghan president Hamid Karzai. In the US DynCorp mans many border posts between the US and Mexico, Pentagon's weapons-testing ranges and provides security for the Air Force One fleet of presidential planes and helicopters.

Noteworthy: CSC and SAIC joined forces and won the contract with IRS to modernize the technology behind the nation's tax system. (Ref)

Computer Science Corp's President/CEO, Van Honeycutt, chairs the President's National Security Telecommunications Advisory Committee (NSTAC), under the Dept of Homeland Security.



Bechtel Group Inc.
San Francisco, Calif.

It was a clash of titans. When word got out that Washington was looking for a few good companies to rebuild Iraq both Bechtel and Halliburton rushed the door. When the elbows stopped flying Halliburton had pushed rival Bechtel out of the way, grabbing not only the first contracts but positioning itself for the lion's share to come.

While Bechtel was initially awarded contracts with a potential $680 billion ceiling, Halliburton walked away with contracts that could payout a potential $2 billion.

Well-connected Bechtel was not accustomed to losing important government contracts and was less than gracious in defeat. "The very nature of the bidding process gives the inside track to Halliburton," a Bechtel insider complained to reporters. The unnamed source said the two contracts that were up for bid did not even specify precisely what work needed to be done, making it all but impossible for Bechtel to formulate a bid. Not so Halliburton.

"They (Halliburton) had data and information the rest of us are not even capable of gathering… so it is hard to pull together a cohesive plan," he said.

But, with heavy lifters like former Reagan administration secretary of state George Shultz on its board, Bechtel's complaints soon registered with the Pentagon. On September 9 the Pentagon announced it had awarded Bechtel an additional $350 million in Iraqi infrastructure contracts, finally pushing Bechtel's total contracts over the billion-dollar mark. A company spokesman explained the no-bid contract extension as money needed so "the company can carry out repairs on projects in which costs are overrunning initial estimates."

The U.S. Army Corps of Engineers admitted KBR (Bechtel) had an advantage, since they had been at work in the fields for months. "KBR does have an advantage on bidding for these contracts -- we're mitigating that advantage as much as possible," said Corps of Engineers spokesman Bob Faletti.

According to Dena Montague of the Arms Trade Resource Center, the list of Bechtel ties to top Republicans is long:

• Key Bechtel alumni include Reagan Secretary of Defense Casper Weinburger, former Bechtel general counsel; Reagan Secretary of State George Schultz, former Bechtel President and current Bechtel board member. W. Kenneth Davis, former vice-president for nuclear development became Reagan's deputy secretary of Energy and head of the Atomic Energy Commission under Reagan.



• William Casey, chairman of the Security and Exchange Commission under Nixon, head of the Export-Import bank under Ford, Reagan campaign manager and head of the CIA under Reagan, was also a Bechtel consultant,



• Richard Helms was CIA director under Nixon and eventually became a Bechtel consultant,



• Robert L. Hollingsworth, Atomic Energy Commission general manager under Nixon, became manager of manpower services at Bechtel.



• Nixon Treasury secretary William Simon also served as a Bechtel consultant.

The Center for Responsive Politics suggested that there may be a quid pro quo at hand. The Center calculated that the construction companies involved in the bidding for the USAID contracts have given a combined $2.8 million in campaign contributions since 1999. Bechtel gave the most, $1.3 million.

Noteworthy: UN inspectors listed Bechtel as one of 24 US companies that supplied Iraq with weapons during the 1980s. (Ref)

Like SAIC Bechtel is not publicly traded, so the affect of its Iraqi contracts on the company's bottom line cannot be fully measured. But since like Halliburton's contracts Bechtel's Iraqi contracts are protected from cost overruns by President Bush's promise that the US will spend, "whatever it takes" to rebuild Iraq, the company can hardy lose.

The Washington Group II
Boise, Idaho

Washington Group International is an international engineering and construction firm fresh out of bankruptcy. WGI won an initial contract of $500,000 that is expected to rise in the months ahead to something more like $100 million to destroy weapons and weapons infrastructure in Iraq. WGI reported $ 3.7 billion in revenue for 2002. Much of the company's defense contract work involves destroying weapons of mass destruction in the United States. Washington Group destroys chemical weapons stockpiles -- including chemical bombs at Anniston Army Depot in Alabama -- and is also involved in the cleanup of certain nuclear weapons plants, including the one at Hanford, Washington.

Typical of the hurriedly issued post-war contracts, WGI's Iraqi contract does not identify any specific work or location. The contract simply states the company will be responsible for "design-build activities, construction, new work, and renovation."

              

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