Bechtel Takes a Hit for War Profiteering

A comprehensive U.S. government audit of a Bechtel project in Iraq has exposed gross mismanagement by the company. As a result, the $50 million contract has been canceled.

As the auditors plan to expand their investigations to all of Bechtel's $2.85 billion in Iraq contracts, they are sure to discover a pattern of failure. Not only should Bechtel be dropped from all of its failing contracts, but the company should be required to refund all misspent U.S. taxpayer and Iraqi funds so that Iraqi contractors can get to work and real reconstruction can finally begin.

But time is running out.

On Sept. 30, 2006, all unobligated money for reconstruction in Iraq reverts back to the U.S. Treasury. This means that unless action is taken now to ensure that this money goes to Iraqis, U.S. corporations will keep their billions, while Iraqis are left with failed projects and little money to recover.

On July 31, the office of the special inspector general for Iraq reconstruction (SIGIR) released an audit of Bechtel's Basra Children's Hospital Project. Congress established SIGIR in October 2004 to provide much needed oversight to U.S. government expenditures on Iraq reconstruction. Under pressure from the public, members of Congress and U.S. soldiers in Iraq, SIGIR expanded its work beyond broad programmatic issues and criminal activities to assessments of individual reconstruction projects. It took even more pressure and time for SIGIR to publicly release the names of contractors responsible for failing projects.

SIGIR's exhaustive (and much overdue) review in April of a $243 million contract held by the Parsons Corp. to construct primary health care centers across Iraq revealed that after more than two years and $186 million, only six of the planned 150 centers were complete. Parsons' contract for the facilities was canceled (as was a $99.1 million contract to build a prison north of Baghdad after it fell more than two years behind schedule). More importantly, the work was turned over to the Army Corps of Engineers, who then handed the contracts directly to local Iraqi companies.

Parsons and Bechtel were once partners. In 1938, Bechtel and Parsons merged with a third company to form the Bechtel-McCone-Parsons Corp. The three companies split amicably after World War II. Parsons is the second-largest recipient of reconstruction dollars in Iraq (after Halliburton) with $5.3 billion in contracts.

Bechtel's hospital boondoggle

In March 2006, SIGIR began investigating the Basra Children's Hospital Project. It found that the project was nearly $90 million over budget and more than a year and half behind schedule (PDF).

Bechtel received the contract to build the new hospital in Basra in mid-October 2004 to "improve the quality of care and life expectancy for both women and children." The original price tag was $50 million, and the due date was Dec. 31, 2005. The auditors now estimate that the project will be completed no earlier than July 31, 2007, and will cost as much as $169.5 million (including $30 million for equipment). However, the report cautions, "there is still an unclear picture of schedule control, security, construction quality, and the use of alternative contract management options that will impact the true cost to complete." Thus, the cost and time involved could be much greater.

Because SIGIR focused more on the U.S. Agency for International Development's (USAID) failure to manage Bechtel than on Bechtel's inability to build the hospital, the report provides few details as to why the project was unsuccessful other than limited references to security concerns and unsatisfactory work by Bechtel's subcontractors.

Bechtel subcontracted to a Jordanian company that subcontracted to Iraqi companies. The trail of subcontracting meant (1) a great deal of additional overhead, (2) little to no managerial oversight, and if this project was like others in Iraq, (3) short-term employment and low pay for Iraquis (compared to what they'd receive if they held the contract themselves).