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Spending $87 Billion to Defend and Rebuild Iraq
Do the Numbers Add Up?

by Mary Boyle
Common Cause
October 21, 2003

For generations, war has meant profits for politically connected companies.

It has never been more true today, as a handful of firms with close ties to the Bush Administration, such as Halliburton, use the tools of money and insider connections to win multi-billion dollar contracts with no competition to rebuild Iraq.

But rebuilding Iraq can't be business as usual in Washington. Much of the world opposed a U.S. war against Saddam Hussein and continues to question our motives for intervening. We must rebuild right -- awarding contracts openly and making transparent decisions -- or risk extensive damage to our credibility as advocates for human rights, democracy and economic development. Nothing short of our international reputation is at stake.

No one seriously questions that Iraq must be rebuilt, and Congress has agreed on an $87 billion assistance package to defend and rebuild the country. But many questions remain about how the money will be spent and who will benefit -- questions made all the more relevant by our own country's staggering economic shortfalls.

Common Cause has attempted to answer some of the pressing questions posed by U.S. efforts to rebuild Iraq. We urge you to send a message to the President and Members of Congress letting them know that that you will hold them accountable to ensure that the Iraqi aid is spent as it was intended, to benefit the Iraqi people and the U.S servicemen and women, not wealthy executives with ties to the White House.


Is $20 billion the maximum amount it will cost to rebuild Iraq?
No. Experts estimate it will cost about $56 billion more over the next four years to rebuild the country.  (Twenty billion dollars of the $87 billion package is for rebuilding Iraq, and $66 billion is for defending it. That reconstruction effort, in total, is expected to cost $56 billion.)

Had the American people expected to invest so much money in rebuilding Iraq?
No. Administration officials earlier this year consistently downplayed the costs of reconstruction. In April, for example, Andrew Natsios, head of the U.S. Agency for International Development, predicted that rebuilding Iraq would cost the taxpayers no more than $1.7 billion. Deputy Defense Secretary Paul Wolfowitz told the House Appropriations Committee in March that the United States wouldn't bare the full financial burden of rebuilding. "It doesn't have to be U.S. taxpayer money," Wolfowitz said.  "And it starts with the assets of the Iraqi people.  They will now own those assets instead of a dictator that owns them, and they should spend them for their own welfare." 

Is this money urgently needed?
No one seriously questions that Iraq must be rebuilt.  But congressional critics have pointed out that the U.S. bombing campaign did not put the country into ruins.  It's suffering rather from years of neglect by a wasteful and irresponsible regime.  Even Administration officials strongly lobbying for the reconstruction money report that Iraq is not a disaster area.  As L. Paul Bremer, administrator of the Coalition Provisional Authority (CPA), testified on Sept. 25, "All of Iraq's 240 hospitals and 90 percent of its health clinics are open.  There is adequate food and no evidence of epidemic. - Electrical service will reach pre-war levels within a month."  CPA is the official name for the temporary U.S. administration in Iraq.

Are other nations offering to pitch in?
Not many so far. The United States is asking other countries to help rebuild and police the country. But when it decided to attack Iraq preemptively, the U.S. did so with the backing of only one major ally, Great Britain. To date, the extent of foreign assistance has been minimal.

How do we know the $20 billion reconstruction piece of the Iraq supplemental will be spent wisely?
We don't know. Some Members of Congress have questioned why some items Bush has requested would be far more expensive than they are in the United States. For example, the Administration has proposed spending $15 million to buy 5,000 computers. That translates into a cost of about $3,000 per computer, plus an additional $40 million for computer training. "This does not seem reasonable when you can find a perfectly reasonable computer for $750," Sen. Chris Dodd (D-CT) said recently.
Other items that have been questioned include:

  1. Two maximum-security prisons, at a cost of $50,000 per bed, in addition to $99 million for renovation and construction work at 26 existing prisons and detention centers. (The House Appropriations Committee voted to give Bush $300 million less than he wanted for prisons.)
  2. Six hundred hand-held radios and satellite phones that cost an average of $6,000 each. According to BusinessWeek, as the war was ending and after bombing disabled Baghdad's telephone system, enterprising Iraqis were able to buy satellite phones from Jordan for $900 each.
  3. Eighty pickup trucks at a cost of $33,000 each; new pickups in America begin at $14,000.
  4. A witness protection program for 100 families that would average $200,000 per person, compared to about $10,273 per person for the U.S. federal Witness Protection Program.
  5. Spending $500,000 to build a museum to commemorate the victims of Saddam Hussein's atrocities, which even some Iraqis have questioned.  "OK, garbage collection I can understand, but statues?" an Iraqi car dealer told USA Today.


Can we afford an $87 billion plan and huge tax cuts?
Sen. Joseph Biden (D-DE) and several other Democratic senators have urged a repeal of at least some of these tax cuts in order to pay for Iraq assistance. Sen. Biden proposed an amendment to the Iraq spending plan that would have temporarily repealed the tax cut for the richest one percent of Americans, those earning about $400,000 or more. The Senate defeated that amendment by a vote of 57 to 42.

Does the money that Congress approves for Iraq have to go to the items President Bush has requested?
No. Because the money is considered "emergency" spending, in federal budget terms, Bush has total discretion over how the money is to be spent. Even so, Congress has suggested that minimum levels be spent for certain activities. For instance, the Senate has requested that at least $100 million be used for democracy building activities and that another $5 million go to Iraqi nongovernmental organizations in grants of up to $100,000.  But Bush does not have to abide by their requests because of the "emergency" spending designation attached to the package.

If Congress approves the $87 billion supplemental, will Iraq have much control over how the money is spent?
No. According to The New York Times, the Bush Administration may agree to allow an agency run by the World Bank and the United Nations to control Iraq aid funds supplied by other countries.

Hasn't the U.S. done this successfully before, when it almost solely rebuilt Europe under the Marshall Plan?
The Marshall Plan, named after then-Secretary of State George C. Marshall, was an effort by the U.S. to help rebuild Western European countries after World War II.  The plan was primarily focused on rebuilding the iron, steel and power industries of 16 countries. From 1948 to 1952, it cost the United States about  $11.8 billion, equivalent to about $103 billion today.

Administration officials keep comparing their reconstruction efforts to the Marshall Plan, but many experts question the similarities. After World War II, the U.S. had no choice but to go it alone and rebuild Europe.  The U.S. was the only major power that emerged unscathed from the conflict. At that point in history, U.S. assets constituted 50 percent of the world's gross domestic  product, James Dobbins, director of the RAND International Security and Defense Policy Center, told the Senate Committee on Foreign Relations in September. But this is not the case now, Dobbins said.  In the 1990s, for example, U.S. assets represented only about 22 percent of global gross domestic product.  What's more, Dobbins pointed out the Marshall Plan involved rebuilding countries that had "homogeneous populations and first-world economies." Iraq, on the other hand, has a less developed economy and an ethnically diverse population.

"The very scale of the task upon which we have embarked suggests that broad burden sharing [with other countries] - would be more appropriate than the largely unilateral approach" of the Marshall Plan, Dobbins said.


The contracts and who's benefiting?

Who are the real beneficiaries of this $87 billion assistance program?
Bremer has testified that every contract of the $20 billion rebuilding package will be competitively bid, and the Senate already has approved an amendment, sponsored by Sens. Susan Collins (R-ME) and Ron Wyden (D-OR), that would require the government to adhere to a strict competitive bidding process and to report to Congress whenever that process was waived.  Nevertheless, major companies already are working in Iraq.  They are the beneficiaries of contracts already received from the government in a far less open process. 

Who are the winners so far?
The initial reconstruction contracts were handled by the U.S. Agency for International Development (USAID), under the auspices of the State Department and the U.S. Army Corps of Engineers (USACE).  USAID's largest contract so far, for the reconstruction of Iraq's infrastructure, was awarded to Bechtel with limited competition; only six U.S. firms were invited to compete for the contract.  The USACE contract, worth up to $7 billion, was awarded without competition to Kellogg, Brown & Root, a subsidiary of Halliburton

Bechtel's $680 million deal involves most of the major civilian rebuilding projects that are not related to oil production. The contract, which has an extra $350 million provision in the works, makes Bechtel responsible for rehabilitation of Iraq's largest port (Umm Qasr), the solid and water waste removal infrastructure, irrigation, road networks, rail systems and key government facilities.  Bechtel must also ensure potable water supplies are available, restore electricity supply and support delivery of basic health care and education.

Bechtel is the same company under investigation for the $1 billion cost overruns for the Big Dig, the Boston highway project. Ironically, Natsios, the USAID administrator, took over the management of the Big Dig after the overrun scandals.  Nevertheless, interviewed on ABC's Nightline last April, he defended the Bechtel contract. Bechtel, he said, "had the highest quality rating, the highest score for the technical requirements of the contract and the lowest price."


Kellogg, Brown & Root received a sole-source, no-bid contract from the USACE to respond to oil-related emergencies and military needs in Iraq.  Payments awarded thus far "include $142 million for base camp operations in Kuwait, $170 million for logistical support, and $28 million for the construction of POW camps," according to Army Joint Munitions Command. The current contract is worth up to $7 billion and allowed Halliburton to pre-position personnel in order to put out oil well fires resulting from the war in Iraq.  Since this contract is "cost-plus," Halliburton's profits are not fixed but increase as the cost of the work increases.  As of September, Halliburton had received more than $1.7 billion under the contract.

After the period of emergency response passed, USACE opened the contract up for competition in July and expects to announce the winning bidder by the end of the October.  However, the new contract requires immediate implementation and the only firm that is in a position to respond quickly is Halliburton, which is already on the ground in Iraq.  Several other firms, most notably Bechtel, dropped out of the bidding, noting that Halliburton had an unfair advantage and that it was unrealistic to expect any real competition.


What is Vice President Cheney's connection to Halliburton? 
Vice President Cheney was the chief executive officer at Halliburton from 1995 to 1999. That year, he resigned from the company to run for vice president and received a $20 million retirement package as well as a $1.4 million cash bonus in 2001. At the end of 2002, he still held more than 400,000 shares of Halliburton stock in unexercised stock options. His deferred salary totaled $205,298 in 2001 and $162,392 in 2002, and he is scheduled to continue receiving payments in until 2005.


Does Vice President Dick Cheney have a continuing financial interest in Halliburton?
Yes, according to the Congressional Research Service, the investigative arm of Congress. Despite claims to the contrary by Cheney, CRS recently concluded in a report that Cheney's unexercised stock options and deferred compensation represent a continuing financial interest in the company.

Has Vice President Cheney's positions in the government helped Halliburton?
Yes. In 2000, the Chicago Tribune quoted a Halliburton vice president, Bob Peebler, saying, "Clearly Dick gave Halliburton some advantages- Doors would open."  According to the New York Times, in the five years before Cheney became CEO of Halliburton, the U.S. Export-Import Bank guaranteed $100 million in loans to foreign borrowers to buy Halliburton services.  That amount had risen to $1.5 billion by the time Cheney left Halliburton.  Currently, Halliburton is working on some 93 individual projects worldwide for the Army and Navy worth roughly $2.4 billion, according to Mother Jones

How did Halliburton receive a no-bid contract to repair Iraq's oil wells?
Halliburton has an exclusive contract with the Army under what is known as the Logistics Civil Augmentation Program (LOGCAP).  Under LOGCAP, a single company acts as consultant to the Army to plan for war or crisis-time logistics support. The program was formalized in 1985 and tested in 1988 during Operation Desert Shield in Iraq.  In 1992, then-Defense Secretary Dick Cheney contracted a company named Brown & Root to study the ways in which the private sector could integrate its services with the military.  Later that year, the U.S. Army Corps of Engineers developed LOGCAP as it is used today with a single company as contractor. The first company to receive the LOGCAP contract was Brown & Root.

Brown & Root, now Kellogg, Brown & Root (KBR), held the LOGCAP contract with the Army until 1997 when the General Accounting Office found significant cost overruns during the conflict in Bosnia.  One often-cited example involved KBR charging the military $87 dollars to fly in sheets of plywood from the U.S. worth only $14. DynCorp held the LOGCAP contract from 1997 until 2001 when it was again awarded to KBR.  KBR is a subsidiary of Halliburton, where Vice President Cheney served as CEO until running for office in 2000.

Now that all remaining contracts in Iraq are supposed to be competitively bid, does that mean Halliburton no longer has an advantage over other companies?
Not necessarily. The New York Times reports that while American officials in Baghdad are offering contracts for open bidding worth hundreds of millions of dollars, companies must submit their bids within three days. While short deadlines are not illegal, they favor companies that are well-connected and hurt those who might be able to do the jobs at less cost.
 
Are there other companies, like Halliburton, that have connections to the White House and are anxious to be involved in the reconstruction of Iraq?
Yes.  Many companies have known since before the war was over that there was going to be a wealth of business opportunities in the rebuilding of Iraq.  And many of the companies that have joined in the effort have long-time connections with the White House.

Here's a look at some of the connections.

Bechtel, as noted above, has already received the largest single contract in Iraq. George P. Shultz, former Secretary of State under President Ronald Reagan, is on the board of directors at Bechtel and was once its president.  Bechtel's chief executive, Riley P. Bechtel, was selected this year to serve on President Bush's Export Council. Jack Sheehan, a retired general is a Bechtel senior vice president.  Sheehan is a member of the Defense Policy Board, which advises Secretary of Defense Donald Rumsfeld.  Bechtel has also donated generously in Washington. In 2001-2002, the company gave $295,250 to Republicans and $221,000 to Democrats and spent an additional $820,000  lobbying.

Another connection is Joe M. Allbaugh, former director of the Federal Emergency Management Agency and President Bush's campaign manager in 2000. Allbaugh recently started a new company, New Bridge Strategies, to help contractors get ahead in the stampede for reconstruction money. The firm is based in Washington, D.C. and also offers the services of other well-connected former administration officials, like Edward M. Rogers Jr. and Lanny Griffith, who both worked in the George H. W. Bush White House.  According to the website, New Bridge Strategies is "a unique company that was created specifically with the aim of assisting clients to evaluate and take advantage of business opportunities in the Middle East following the conclusion of the U.S.-led war in Iraq."

Charles R. Black Jr., is chairman of BKSH & Associates and a strategist for both George W. Bush and his father.  The company represented the Iraqi National Congress when it was still a group of exiles opposed to Saddam Hussein.  Many of the members of the INC are now members of the country's provisional government.  Black told the Washington Post that his company would use its contacts to set up business operations in the country. 

Akin Gump Strauss Hauer & Field is yet another firm with ties.  It boasts retired Gen. Anthony Zinni, former head of US Central Command and special envoy to the Middle East under Bush, who still  serves as a consultant for the state department. Akin Gump is currently providing legal advice for companies that are owed money by Iraq.
 
The well-known K Street firm, the Livingston Group, named after former Appropriations Committee Chair Bob Livingston (R-LA), has secured a contract for a British company De La Rue to print the new Iraq currency.  Former Representative Anthony J. (Toby) Moffett Jr., (D-CT) was reportedly working on another contract to produce secure travel documents.

Zell Goldberg & Co. Lawyer L. Marc Zell was the former law partner of Douglas Feith, the Pentagon undersecretary of defense for policy. According to the company's website: "Zell, Goldberg & Co. has recently established a task force dealing with issues and opportunities relating to the recently ended war in Iraq. The firm, together with the Federal Market Group, is assisting regional construction and logistics firms to collaborate with contractors from the United States and other coalition countries in implementing infrastructure and other reconstruction projects in Iraq."

Zell has also teamed up with Salem Chalabi, nephew of Ahmed Chalabi, one of the leaders of the post-Saddam government in Iraq appointed by the U.S. to form a business partnership.



Rebuilding

Is it difficult to coordinate a private company with the military, especially under dangerous circumstances?
Yes. Members of Congress and others have raised concerns about long-term problems associated with the outsourcing of jobs that have traditionally been performed by military personnel.

One lawmaker, Rep. Janice Schakowsky (D-IL), said that despite the migration of private contractors to Iraq, her colleagues have given little thought to their impact on reconstruction efforts. "They don't have to follow the same chain of command, the military code of conduct may or may not apply, the accountability is absent and the transparency is absent - but the money keeps flowing," Schakowsky told the New York Times.

Peter W. Singer, National Security Fellow at the Brookings Institute, says private companies are operating in uncharted waters in Iraq. "At the end of the day, neither these companies nor their employees are bound by military justice, and it is up to them whether to show up or not," Singer told the Washington Post. "The result is that there have been delays in setting up showers for soldiers, getting them cooked meals and so on." 

Is the Army saving taxpayers money by sending civilians into Iraq instead of military personnel?
It's unclear. Sen. John McCain (R-AZ) has told the New York Times he would propose an outside audit of the spending in Iraq "to reassure the taxpayer that the money will be well spent and not disappear into a black hole."

Are the Iraqi people part of the rebuilding process?
As of now, no. Iraq lacks a formal government, so the ultimate authority in the country is the Coalition Provisional Authority (CPA). Decisions are being made in consultation with an interim Iraqi Governing Council, whose members were appointed by the United States. The CPA recently made two crucial decisions that will permit foreign companies to have more latitude in the country's reconstruction and economic life. One is that foreign corporations may own firms and banks in Iraq and will have, according to Bremer, "an unrestricted right to remit profits and capital." That decision reportedly is being opposed by many Iraqi business leaders because they fear they won't be able to compete with foreign-owned firms.

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