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Some contracts in Iraq spend over 50% on overhead
The San Francisco Chronicle/NY Times
James Glanz, New York Times
October 25, 2006

Overhead costs have consumed more than half the budget of some reconstruction projects in Iraq, according to a government estimate released Tuesday, leaving far less money than expected to provide the oil, water and electricity needed to improve the lives of Iraqis.

The report by a federal oversight agency provides the first official estimate that in some cases, more money is being spent on things like housing and feeding employees, completing paperwork and providing security than on actual construction.

In some cases, those costs have eaten up 55 percent or more of the budget, according to the report, by the special inspector general for Iraq reconstruction. On similar projects in the United States, such costs generally run to a few percent of the total.

The highest proportions of overhead were incurred in oil facility contracts won by KBR, the Halliburton Co. subsidiary formerly known as Kellogg, Brown & Root, which has frequently been challenged by critics in Congress and elsewhere.

"This report is the latest chapter in a long, sad and expensive tale about how contracting in Iraq was more about shoveling money out the door than actually getting real results on the ground," said Stephen Ellis, a vice president at Taxpayers for Common Sense in Washington. "These contracts were to design and build important items for oil infrastructure, hospitals and education, but in some cases more than half of the money padded corporate coffers instead," he said.

The actual costs for many projects could be even higher than the estimates, the report said, because the United States has not properly tracked how much such expenses have taken from the $18.4 billion of U.S.-financed rebuilding approved by Congress two years ago.

The report said the prime reason for the overhead was not the need to provide security, though those costs have clearly risen in the perilous environment of Iraq, and are a burden that both contractors and U.S. officials routinely blame for such increases.

Instead, the inspector-general pointed to a simple bureaucratic flaw: The United States ordered the contractors and their equipment to Iraq and then let them sit idle for months at a time.

The delay between assembling the teams in Iraq and the start of actual construction was as long as nine months, the report said.

"The government blew the whistle for these guys to go to Iraq and the meter ran," said Jim Mitchell, a spokesman for the inspector general's office. "The government was billed for sometimes nine months before work began."

The findings are similar to those of a growing list of inspections, audits and investigations that all have concluded the program to rebuild Iraq has often fallen short for the most mundane of reasons: poorly written contracts, ineffective or nonexistent oversight, needless project delays and egregiously poor construction practices.

Although the federal report places much of the burden for the charges squarely on the shoulders of U.S. officials in Baghdad, the findings varied widely over a sampling of contracts examined by auditors, from a low of less than 20 percent for some companies to a high of more than 55 percent.

One oil contract awarded to a joint venture between Parsons, a U.S. company, and Worley, from Australia, had overhead costs of at least 43 percent, the report found. One contract held by Parsons alone to build hospitals and prisons had overhead of at least 35 percent and another 17 percent.

The report did not explain why KBR's overhead costs on those contracts, for about $296 million, were more than 10 percent higher than any of the other companies that were audited. Despite past criticism of KBR, the Army, which administers those contracts, has generally agreed to pay most of the costs claimed by the company.

Melissa Norcross, a spokeswoman for KBR, said in a written reply to questions, "It is important to note that the special inspector general is not challenging any of KBR's costs referenced in this report."

Referring to the Army Corps of Engineers, which is in charge of the oil contract, she said, "All of these costs were incurred at the client's direction and for the client's benefit."

A frequent Halliburton critic, Rep. Henry Waxman of Los Angeles, the senior Democrat on the House Government Reform Committee, disputed those assurances.

"It's incomprehensible that over $160 million -- more than half the value of the contract -- was squandered on overhead," Waxman said.

Original Text