Securing investors: what next for Iraq reconstruction?

Monika Grzesik looks at the current state of the Iraq reconstruction programme and what incoming contractors can expect.

Pc: Infrastructure rebuilding work continues in Baghdad amidst the ongoing volatile security situation in the Iraqi capital. (Getty Images)
Pc: Infrastructure rebuilding work continues in Baghdad amidst the ongoing volatile security situation in the Iraqi capital. (Getty Images)

In a move to reconstruct the country's shattered economy, the Iraqi government is attempting to bring foreign investment into the country. According to Bayan Dezayie, minister of housing and construction, many projects will not get underway without the support of foreign companies.

"Our ministry is working on roads and bridges, housing and schools, airport projects and government buildings," she said.

It has been typical for contractors to have projects delayed because of security or delays by subcontractors.

"We have many projects going on. [But] most projects we cannot do because it [the country] needs a lot of money, so we are looking for investment. We need millions and millions of dollars."

However, with the lack of security in Iraq still posing a major challenge, it is likely that foreign companies may be apprehensive about entering the country until the current situation is improved. Billions of dollars have so far been pumped into Iraq's reconstruction, but the plans to rebuild the war-torn nation have so far been largely disastrous. The Iraq Relief and Reconstruction Fund (IRRF), established by US Congress in 2003 to rebuild Iraq's infrastructure, is funded with US $18.6 billion. But a report released in July by the Special Inspector General for Iraq Reconstruction (SIGIR), highlighted the fact that much of this money was disappearing due to corruption and fraud. SIGIR is currently conducting 57 separate investigations into fraud, waste and abuse in Iraq's reconstruction and described the endemic corruption in the country as the 'second insurgency'.

Billions of dollars have so far gone to American contractors. One of the biggest to profit from the Iraq war is US construction giant Bechtel, which was awarded a $1.3 billion contract funded by the IRRF to provide engineering, procurement, and construction services. However, after pulling out of Iraq in 2006, many have questioned its benefit to the Iraqi people. As part of the report, SIGIR conducted an examination into the work performed by Bechtel under its phase two IRRF contract. It was discovered that Bechtel successfully completed less than half of the work it was contracted to carry out. The audit found that of 24 job orders, only 11 met their original objectives. The report said: "The results on individual projects were mixed: some were completed as originally envisioned, others were cancelled, and still others were partially completed and were transferred to other organisations for completion."

Bechtel insists that its inability to meet 'original objectives' on a project does not indicate failure. Jonathan Marshall, media relations manager, Bechtel Corporation told Construction Week: "As you know customers change their original scope all the time - they issue change orders on most of our jobs. In fact, the report praised our accomplishments and appended to the report was a statement by our customer, USAID, declaring: "Bechtel performed exemplary work that was responsive and cost-effective to the US Government and the American taxpayer.'"

But Bechtel did face large-scale problems in Iraq. Projects it failed on include a $24 million water treatment plant in Sadr City, a $4 million Baghdad landfill and the $26 million Basrah Children's Hospital, which had to be transferred to the US Corps of Army Engineers for completion. In many cases violence and conflict rendered reconstruction a futile exercise.

"I think it's fair to say that violence and insecurity posed the biggest challenge," said Marshall. "Two jobs we failed to complete, a children's hospital in Basra and a water treatment plant in Sadr City, were both suspended by agreement with USAID because of extraordinary security risks. Twenty-four people were murdered by armed killers in the course of construction of the hospital."

Stuart Bowen, special inspector general for Iraq, described the Bechtel audit as "emblematic of the many challenges faced by contractors in the Iraq reconstruction programme, including insufficient oversight, descoping, project cancellations, cost overunns, and significant delays in completing projects".
According to Bowen, much of the difficulty lies with subcontractors. "It has been typical for contractors to have projects delayed because of security or delays by subcontractors," he said. "That's why virtually every project in Iraq has cost more or taken longer than expected, and as is the case with the Bechtel contract, some projects didn't get finished at all."

Bechtel subcontracted approximately 90% of the direct reconstruction costs; many to Iraqi firms. SIGIR identified a total of 168 subcontracts - 66 awarded by Bechtel and 102 awarded, in turn, by Bechtel's subcontractors. According to the report "Bechtel had procedures that it used to manage its subcontractors, but multiple layers of subcontract management made oversight complex, and neither USAID nor Bechtel had information on all subcontracts down to the lowest tier".

There is a disturbing lack of control over construction contracts being carried out in Iraq, not to mention the billions of dollars from the reconstruction fund that are rapidly disappearing into a black hole of fraud and corruption. In the absence of security, with conflict and sectarian violence rendering it increasingly dangerous for both Iraqi and foreign contractors to operate, it will no doubt be a while before the millions of dollars of investment the government is hoping for comes flooding in.

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