Iraq Reconstruction: Transparent And Open?

In a move that reflected the intense political pressures from opponents of the Bush Administration regarding award of contracts for the reconstruction of Iraq to Halliburton, the U.S. Army Corps of Engineers recently announced that it has amended a solicitation for two contracts to be awarded competitively to restore Iraqi oil infrastructure to pre-war production levels. The contracts are intended to replace a sole-source contract to Halliburton’s federal contracting division, Kellogg, Brown & Root. These new, indefinite quantity, indefinite delivery, contracts are being awarded in response to Congressional pressure and opposition to what some claim was an inappropriately open-ended contract to Halliburton.

Without weighing in on the merits of criticism from members of Congress like Senator Susan Collins (R-ME) and Rep. Henry Waxman (D-CA) about the propriety of the award to Halliburton, it is clear that various contracting agencies have reacted to the criticism and will now at least attempt to give the appearance that contracts for the reconstruction of Iraq will be awarded on a competitive basis pursuant to the full and open standard set forth in the Competition in Contracting Act ("CICA"). Despite the salacious sound bites in the media, contracts are not awarded by the U.S. Government on the basis of political donations. Instead, contract awards are made pursuant to a complicated set of procurement regulations, and any competitive advantage one entity may have over another is usually subtle. In this regard, to the extent certain companies may be pre-disposed to win, such a predisposition is, more often than not, linked directly to the advantages of incumbency or corporate size and financial stability, as evidenced by the award to Halliburton, an incumbent contractor.

The Army Corps of Engineers ("Corps"), the U.S. Agency for International Development ("USAID") and the Coalition Provisional Authority ("CPA") have announced an intention to make transparent and open the competition for Iraq reconstruction contracts. For its part, the CPA, while it is an institution created by the U.S. Government, takes the position that its contracts are not subject to U.S. law or regulation. Nonetheless, the CPA recently adopted contracting procedures, which are titled "Memorandum Number 4, Contract and Grant Procedures Applicable to Vested and Seized Iraqi Property and the Development Fund for Iraq" and which are reminiscent of the Federal Acquisition Regulation ("FAR"). The CPA procedures, among other things, require that contracts be awarded competitively and that the proposed price must be deemed fair and reasonable. The procedures also outline specific competition, solicitation and documentation requirements for three separate dollar values of contracts – micro-purchases of $5000 or less, small purchases up to $500,000, and large purchases. The CPA procedures even contain provisions addressing protests and disputes.

In order to demonstrate that it is indeed serious about transparency and openness in the contracting process, the CPA held an industry day on November 19, 2003 in Alexandria, Virginia to discuss this very topic. At this meeting, Admiral David Nash (Ret.) outlined an acquisition process for awarding up to 25 cost plus incentive task order contracts before February 1, 2004. Admiral Nash is the director of the newly established Program Management Office ("PMO"), an arm of the CPA that has been tasked with overseeing reconstruction contracting in Iraq. Of the new contracts to be awarded, 17 will be for construction, including five contracts worth $5 billion for the repair of Iraq’s electrical grid and five contracts worth $4 billion for public works and water projects. Other construction contracts will be awarded for transportation and communications systems, fuel distribution and repair of the oil industry infrastructure, and construction of police stations and prisons. Non-construction contracts will be awarded for project management, including one to support Nash’s office.

According to Admiral Nash, contracts will be awarded on a competitive basis pursuant to the requirements set forth in the FAR. In this regard, no specifics were proffered. In order to compete, prospective contractors must make an initial submission that includes information regarding:

On the basis of these submissions, for each contract, three companies will be chosen pursuant to an "advisory down select" to submit responsive proposals that will be evaluated by a designated source selection official. It is the second prong of this process that will be conducted on the basis of some form of competition. A contractor that is not invited to submit a proposal in response to an RFP has no recourse to air its complaint or concerns. According to the schedule announced at Industry Day, requests for proposals were to be issued on December 5, 2003, and contracts were to be awarded by February 1, 2004. For reasons that have not been announced publicly, this ambitious schedule has been delayed and the initial bidders conference has been postponed until sometime later in January.

Only U.S., Iraqi, and coalition partner companies will be permitted to compete as prime contractors. As of the industry day meeting, the PMO was still working out the details as to the legality of such a position, and Admiral Nash, himself, was not concerned and did not seem to acknowledge the existence of any potential legal barriers, as he asserted that other companies could endeavor to act in a subcontracting capacity. To the extent there was any discussion as to the legitimacy of this position, it was silenced by a December 5, 2003 Determination and Findings issued by Paul Wolfowitz, Deputy Secretary of Defense, in which he asserted that "It is necessary for the protection of the essential security interests of the United States to limit competition for the prime contracts of these procurements. Thus, it is clearly in the public interest to limit prime contracts to companies from these countries." While this Determination and Findings was allegedly premised on the national security exception to World Trade Organization’s ("WTO") Government Procurement Agreement ("GPA"), as was widely reported in the press, many other signatories to the GPA, including France, Germany, Canada, and Russia, clearly do not agree with the legality of such an exclusive approach to contracting. Still to be announced is the criteria by which the PMO will determine the nationality of a particular company for purposes of eligibility to contract. An issue that was not addressed during industry day, which is no doubt of concern to many, is the lack of oversight and accountability of CPA/PMO, especially given the vagaries of the process and the significant unresolved issues.

For their parts, the Corps and USAID, both subject to CICA and the FAR, had previously awarded sole source contracts for numerous aspects of Iraq reconstruction, justifying this action on the urgent and compelling nature of the situation on the ground in Iraq. USAID claimed that a minimum of six months was necessary for the conduct of competitive procurements and that the emergency needs of the Government precluded such a process. Certainly, the situation is grave for U.S. troops, and Iraq remains a dangerous place. However, the Corps and USAID have concluded that, rather than continue to face Congressional and public pressure, they will award some new contracts on the basis of full and open competition. While making this concession, USAID remains defensive of its earlier procurement decisions. With the exception of the existing Halliburton contract, the agencies’ sudden desire to comply with CICA does not impact the base periods for existing contracts that were awarded on a sole source basis. The agencies will not, however, be able simply to renew or exercise options under these contracts, but, instead, will be required to compete additional work on a full and open basis.

What does this mean as a practical matter for any entity seeking to become involved in the Iraq reconstruction effort? It means increased opportunities for contractors previously stymied in their efforts to break into the perceived lucrative Iraq market by the award of very few, large dollar value sole source awards. It is probably true that, given the acquisition procedures identified by Admiral Nash, it will be very difficult for all entities to enjoy an equal opportunity to compete. Furthermore, certain ironies abound as to the competitive nature of the awards in light of USAID’s earlier protestations and justification of its sole source approach because of the need for a minimum of 60 days to conduct a competitive procurement. What also remains to be played out is which entity will take charge in Iraq. Although the CPA/PMO is officially in charge, the State Department, through USAID, and the Pentagon are also exercising their authority in Iraq. With such competing interests, it may be difficult under some circumstances for a contractor to know which entity is calling the shots and which presents the best contracting opportunities. Despite such logistical hurdles, as long as a contractor has a written contract and a clearly identified Contracting Officer, the opportunities in Iraq are very real and should be obtainable. It behooves a contractor to broaden its search for opportunities to include the CPA, the Corps, and USAID. This is a time to be proactive and to capitalize on what appears to be political pressure for openness and transparency. Although the initial contracting schedule, perhaps because it was too ambitious, has been delayed, it is critical to become as familiar as possible with the contracting landscape. Simply put, with some effort and creativity in identifying opportunities, contractors have every expectation of participating successfully in the lucrative Iraq reconstruction effort.

To learn about contracting opportunities in Iraq, check out the following websites:

www.usaid.gov 

www.cpa.gov 

www.rebuilding-iraq.net 

www.export.gov/iraq 

www.usace.army.mi 

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