No Bid And No Problem

by Charlie Cray

July 07, 2004

There may have been a transfer of sovereignty in Iraq last week, but on the ground things look much the same: most Iraqis without reliable utility service and no-bid contractors scooping up billions of Iraq's oil money without producing any measurable improvements.  Here, Center for Corporate Policy Director Charlie Cray traces the connections between the Bush administration and corporate interests and explains how no-bid contracts are undermining democracy in Iraq—and at home.

Charlie Cray is the director of the  Center for Corporate Policy and a collaborator on  Halliburton Watch. His book, The People’s Business: Controlling Corporations and Restoring Democracy, (co-authored with Lee Drutman) will be published by Berrett-Koehler in November.

The U.S. occupation of Iraq may be entering a new phase with the nominal transference of sovereignty, but reports issued from and about Iraq in recent days suggest that the promised reconstruction is far from done. And while many well-connected cronies rush home to reinforce their friends’ re-election efforts, it’s not clear that those left behind will ever finish the job—a circumstance that is bound to aggravate existing tensions in the country.

According to the Government Accounting Office (GAO) and The New York Times , more than a year after the first infamous no-bid contracts were given out Halliburton and Bechtel, only a fraction of the projected construction projects have been carried out. Supplies of electricity and water are no better for most Iraqis, and in some cases utilities are much worse than they were before the invasion in the spring of 2003.

A report put out by Christian Aid last week suggests that the mess left behind by the CPA may be much worse than the well-known abuses associated with the reconstruction money allocated by Congress. The UK-based group—which has closely monitored the CPA’s handling of Iraq’s oil-related revenues—reports that CPA officials left the country after spending nearly $20 billion out of the Development Fund of Iraq (derived from oil revenues) with virtually no accountability or transparency.

“For the entire year that the CPA has been in power in Iraq, it has been impossible to tell with any accuracy what the CPA has been doing with Iraq’s money,” said Helen Collinson, a policy analyst with Christian Aid.

The CPA’s hasty exit strategy will remind some observers of the stampede of greedy executives who cashed out their options a few years ago before leaving others to deal with the mess they left behind. In the run up to the handover, Christian Aid reports, CPA officials spent nearly $2 billion of the “Iraqi people’s” money. The transitional government will be in place just two weeks before an initial KPMG audit of the CPA’s handling of the development fund is due.

Meanwhile, although U.S.-funded reconstruction work will continue, festering resentments over unfulfilled promises of a Marshall Plan-scale reconstruction and refurbishment of the country’s infrastructure will likely continue to fuel support for the resistance. The resistance itself all but guarantees that a significant portion of the money earmarked for reconstruction will have to be spent on private security protection for reconstruction personnel (GAO estimates the current fraction is 18 percent), while the projects themselves will be prime targets for sabotage.

It’s also unclear if the private military firms providing the security could be held accountable in the event of human-rights violations or whether the contractors themselves can be held to account for shoddy work. A new contract to coordinate contractor security was awarded in May to the British firm Aegis, whose founder Tom Spicer’s resumé includes a history of arms smuggling in countries like Sierra Leone. As the result of a parting gift to the contractors, CPA chief Paul Bremer signed a final order on June 28 which guarantees that U.S. contractors will be exempted from prosecution by the country's new interim government for anything that happens while they are performing official duties.

Despite the transference of sovereignty, the CPA’s other various orders (including those that open up certain state-owned businesses to foreign investors, which critics say violate international norms restricting an occupying power’s right to restructure the occupied country’s economy) will also remain in effect during the coming transition.

Meanwhile, more than 100,000 U.S. troops will be forced to stay and occupy the country through the hot summer and for the foreseeable future, while many of the Bush administration’s war-profiteering cronies will be coming home—as reinforcements for the Bush/Cheney re-election campaign. In fact, a few are Bush/Cheney “Pioneers” and “Rangers.” (They could just as well have called them “rocketeers” for taking fundraising to new levels, but someone must have noticed how close to “racketeer” that sounded).

To name a few of the war profiteers wired into the Bush/Cheney patronage system:

•  In 2003, a few of Bush’s closest political allies created New Bridge Strategies to help corporations “evaluate and take advantage of business opportunities in the Middle East following the conclusion of the U.S.-led war.” New Bridge shares its Washington, DC offices with Barbour, Griffith & Rogers—the high-powered Republican lobbying firm founded by Haley Barbour, former head of the Republican National Committee and current governor of Mississippi. The firm’s CEO is Joe Allbaugh, the Bush/Cheney 2000 national campaign manager (and subsequent head of FEMA), and others involved include Ed Rogers (a top aide to Bush Sr.) and Lanny Griffith (who held several top advisory positions under Bush Sr., and is a 2004 Pioneer). Allbaugh recently registered as a lobbyist with Lockheed Martin. Looks like he finally figured out where the big money is.
• Top GOP strategist Charlie Black’s clients have included Fluor, which received a big public works contract in Iraq to reconstruct the country’s water and electricity. Black is chairman of BKSH, an affiliate of global public relations giant Burson-Marsteller, and a big backer of Ahmed Chalabi before the war. In June, the London-based Telegraph reported that an arrest warrant was issued by the Iraqi police for Francis Brooke, a BKSH consultant who attempted to block a recent raid on Chalabi’s Iraqi headquarters, after Chalabi was accused of passing American secrets to Iran.
• In the administration’s drive to create a beacon for democracy for the entire Middle East, another outstanding example of “do as we say and not as we do” has been the way the contract to develop a “competitive private sector” in Iraq has been handled. In this instance, the U.S. Agency for International Development allowed BearingPoint to help write the specifications for the $240 million contract, which in effect knocked its competitors out of the running, according to AID’s own inspector general. BearingPoint (formerly KPMG Consulting) and its employees have given more than $117,000 to the 2000 and 2004 Bush election campaigns. In 2003, an $80 million BearingPoint contract in Florida was withdrawn after critics complained about the company’s close ties to Gov. Jeb Bush.
• Former Rep. Bob Livingston, R-La., runs a lobbying firm that has represented well-placed Iraqi families seeking to form business alliances with U.S. and foreign companies wishing to do business in Iraq. Livingston has also gained some notoriety in Washington for lobbying against provisions that would ban tax-dodging companies that have incorporated offshore from being eligible for federal contracts. Recently he was part of an effort that succeeded in convincing Congress to drop an attempt to block the Department of Homeland Security’s from giving Bermuda-based Accenture a $10 billion contract for, of all things, “border control.” (U.S. taxpayers who don’t have any offshore accounts might not be happy to learn that Accenture also has a contract to help the IRS upgrade its website.)
•  In 2003 Coalition Provisional Authority chief Paul Bremer issued a decree that Iraq’s 200 state-owned companies would be privatized and that foreign owners would be allowed to expatriate 100 percent of the profits. This looting of Iraq’s state-owned businesses—disguised as “private-sector development” was stalled by worker protests and skepticism among wary investors concerned about the strength of the insurgency. Thomas Foley—a former Citigroup banker assigned by the CPA to oversee the privatization process, returned to Greenwich, Conn. in early 2004, where he is the state co-chair for the Bush/Cheney re-election campaign.
•  Three weeks after construction and engineering firm  Washington Group was awarded a contract to rebuild water projects in Iraq, 31 company employees gave $27,750 to Bush. By the end of April 2004, CEO Stephen Hanks had become a Bush campaign “Pioneer” (by raising more than $100,000).  Washington Group spokesman Jack Hermann was unconcerned about any appearance of impropriety. "You either participate in the system or you don't," Hermann told a Bloomberg reporter. "People can draw ulterior motives. We understand the baggage that comes with that."

The kingpin of corporate cronies, of course, is Vice President Cheney’s old firm, Halliburton. Recent revelations that a political appointee working under Douglas Feith made the decision to override objections from career Pentagon contract experts to award Halliburton a key oil-related contract which provided the company an inside track for no-bid billion-dollar contracts has given partisan critics plenty of ammunition to criticize the administration’s bending of contract rules to benefit their friends. The fact that Cheney’s chief of staff was notified of the decision contradicts the vice president’s claim that he has had no involvement in the decision and, along with his televised assertion that he has no “ongoing financial interest” in the company (while continuing to receive more than $150,000 in deferred compensation payments) has made his connection to the king of corporate cronies a significant potential liability for the administration’s credibility and the upcoming election.

“The entire Halliburton affair represents the worst in government contracts with private companies: influence peddling, kickbacks, overcharging and no-bid deals," charged Sen. Frank Lautenberg, D-N.J. in a March 2004 Associated Press article. But the vice president’s old firm is by no means the only war profiteer that has close ties to top administration officials. In fact, just as the U.S. media failed to objectively cover the war after being em-bedded with the troops, they have mostly failed to map out how thoroughly inbedded this network of contractors is with the Bush family, friends and campaign cronies.

For example, last year, the Financial Times reported that Neil Bush has been involved in the Iraq contract gravy train through his association with John Howland and Jamal Daniel of New Bridge Strategies. The president's brother wrote letters to push businesses established by Howland and Daniel, including Crest Investment Corporation, which in turn employs Bush as co-chairman. The FinancialTimes reported that Bush receives the equivalent of $60,000 a year from Crest for working an average of three or four hours a week. The failure of the U.S. media to report this story is amazing. Imagine if the story involved Roger Clinton.

The blame also falls on Congress for not passing many proposed amendments to the Iraq appropriations that would have brought a higher standard of oversight and accountability to the contracts. As Sen. Dorgan and other members have suggested, the outsourcing of the oversight process itself is another way that the Bush administration has insulated the contractors from any real level of accountability.

In January 2004, Rep. Jim Leach, R-Iowa, introduced a resolution calling for the creation of a bipartisan committee to “investigate the awarding and carrying out of contracts” in Iraq, Afghanistan and elsewhere. Leach’s proposal is modeled after Harry Truman’s World War II committee—which saved taxpayers billions by rooting out corruption. It’s worth noting that Truman’s commission was created by a Congress controlled by the same party as the president.

Just as it was then, oversight should not be considered partisan,” Leach asserted. “It should be viewed solely in the context of protecting and preserving public resources and bolstering people’s confidence in their government.”
Of course, Leach’s bill was quietly quashed by Republican leaders who clearly understood that any investigation of Halliburton would be political suicide during an election year.