.Overhead Costs Consume Budget for Iraq Reconstruction
Overhead costs have consumed more than half the budget of some reconstruction projects in Iraq, according to a government estimate released yesterday, 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 provided the first official estimate that in some cases, more money was 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, those costs generally run to a few percent.
The highest proportions of overhead were incurred in oil-facility contracts won by KBR, the Halliburton subsidiary formerly known as Kellogg, Brown & Root, which has frequently been challenged by critics in Congress and elsewhere.
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 taxpayer-financed reconstruction 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 American 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 "mobilization," or 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 have concluded that 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.
"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.
Although the federal report places much of the burden for the charges squarely on the shoulders of United States officials in Baghdad, the findings varied widely over a sampling of contracts examined by auditors, from a low of under 20 percent for some companies to a high of over 55 percent.
One oil contract awarded to a joint venture between Parsons, an American 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 lowest figure was found for certain contracts won by Lucent, at 11 percent, but the report indicates that substantial portions of the overhead in those cases could not be determined.
The report did not explain why K.B.R.'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 K.B.R., the Army, which administers those contracts, has generally agreed to pay most of the costs claimed by the company.
Melissa Norcross, a spokeswoman for K.B.R., said in a written reply to questions, "It is important to note that the special inspector general is not challenging any of K.B.R.'s costs referenced in this report."
"All of these costs were incurred at the client's direction and for the client's benefit," Ms. Norcross said, referring to the Army Corps of Engineers, which is in charge of the oil contract.
But a frequent Halliburton critic, Representative Henry A. Waxman, a California Democrat who is the ranking minority member of the House Committee on Government Reform, disputed those assurances. "It's incomprehensible that over $160 million - more than half the value of the contract - was squandered on overhead," Mr. Waxman said in a written statement.
The majority leader of the same committee, Thomas TK Davis, a Virginia Republican, declined through a spokesman to comment. A spokeswoman for Parsons, Erin Kuhlman, said that the United States categorized overhead and construction costs differently from contract to contract in Iraq, making it difficult to make direct comparisons between them. "Parsons incurred, billed and reported actual costs as directed by the government," Ms. Kuhlman said.
In Iraq, where construction materials are scarce and contractors are forced to provide security for work sites and housing for Western employees, officials have said that they expected the costs to be at least ten percent.
Western contractors and American officials in Iraq have grudgingly conceded that the true overhead costs have turned out to be higher than that figure.
But even the high of 55 percent could be an underestimate, Mr. Mitchell said, because the government often did not begin tracking overhead costs for months after the companies mobilized. He added that because of the haphazard way in which the government tracked the costs, it was not possible to say how well the figures reflected overhead charges in the entire program.
The report's conclusions were drawn from $1.3 billion in contracts for which United States government overseers actually made an effort to track overhead costs out of the total of $18.4 billion set aside for reconstruction in specific supplemental funding bill for the 2006 fiscal year.
When all American and Iraqi contributions are added up, various estimates for the cost of the rebuilding program range from $30 billion to $45 billion. Language included in the Defense Authorization Act, signed by President Bush last week, states that the inspector general's office will cease its examination of those expenditures by October of next year.
Maj. Gen. William H. McCoy, who until recently commanded the Gulf region division of the corps, disputed some of the inspector general's findings in a letter appended to the report. Things like "waiting for concrete to cure" could still be taking place during what seem to be periods of inactivity, General McCoy wrote, so a quiet period "does not mean that the project is not moving forward."
But many of the delays came during 2004 and took place in response to political developments in Iraq, the inspector general's report says. The American occupation government, called the Coalition Provisional Authority, mobilized many of the companies early that year.
After the authority went out of existence in June 2004, handing sovereignty to an Iraqi government, top American officials then kept the companies idle for months as they rejiggered the rebuilding plan and ran up costs as little work was done.
NYT
Damn! Neurotica and HUBBY are tacking it all, not leaving any for the rest.
Can't blame them, getting while the getting good. Blame the do nothing congress that did not bother to look into the facts 3 years into this fight. They had the responsibility to hold the contractors responsible for the money they took and for the work they promised to complete. But unfortunately for the American and Iraqi people Congress was AWOL.
The report by a federal oversight agency provided the first official estimate that in some cases, more money was 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, those costs generally run to a few percent.
The highest proportions of overhead were incurred in oil-facility contracts won by KBR, the Halliburton subsidiary formerly known as Kellogg, Brown & Root, which has frequently been challenged by critics in Congress and elsewhere.
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 taxpayer-financed reconstruction 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 American 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 "mobilization," or 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 have concluded that 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.
"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.
Although the federal report places much of the burden for the charges squarely on the shoulders of United States officials in Baghdad, the findings varied widely over a sampling of contracts examined by auditors, from a low of under 20 percent for some companies to a high of over 55 percent.
One oil contract awarded to a joint venture between Parsons, an American 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 lowest figure was found for certain contracts won by Lucent, at 11 percent, but the report indicates that substantial portions of the overhead in those cases could not be determined.
The report did not explain why K.B.R.'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 K.B.R., the Army, which administers those contracts, has generally agreed to pay most of the costs claimed by the company.
Melissa Norcross, a spokeswoman for K.B.R., said in a written reply to questions, "It is important to note that the special inspector general is not challenging any of K.B.R.'s costs referenced in this report."
"All of these costs were incurred at the client's direction and for the client's benefit," Ms. Norcross said, referring to the Army Corps of Engineers, which is in charge of the oil contract.
But a frequent Halliburton critic, Representative Henry A. Waxman, a California Democrat who is the ranking minority member of the House Committee on Government Reform, disputed those assurances. "It's incomprehensible that over $160 million - more than half the value of the contract - was squandered on overhead," Mr. Waxman said in a written statement.
The majority leader of the same committee, Thomas TK Davis, a Virginia Republican, declined through a spokesman to comment. A spokeswoman for Parsons, Erin Kuhlman, said that the United States categorized overhead and construction costs differently from contract to contract in Iraq, making it difficult to make direct comparisons between them. "Parsons incurred, billed and reported actual costs as directed by the government," Ms. Kuhlman said.
In Iraq, where construction materials are scarce and contractors are forced to provide security for work sites and housing for Western employees, officials have said that they expected the costs to be at least ten percent.
Western contractors and American officials in Iraq have grudgingly conceded that the true overhead costs have turned out to be higher than that figure.
But even the high of 55 percent could be an underestimate, Mr. Mitchell said, because the government often did not begin tracking overhead costs for months after the companies mobilized. He added that because of the haphazard way in which the government tracked the costs, it was not possible to say how well the figures reflected overhead charges in the entire program.
The report's conclusions were drawn from $1.3 billion in contracts for which United States government overseers actually made an effort to track overhead costs out of the total of $18.4 billion set aside for reconstruction in specific supplemental funding bill for the 2006 fiscal year.
When all American and Iraqi contributions are added up, various estimates for the cost of the rebuilding program range from $30 billion to $45 billion. Language included in the Defense Authorization Act, signed by President Bush last week, states that the inspector general's office will cease its examination of those expenditures by October of next year.
Maj. Gen. William H. McCoy, who until recently commanded the Gulf region division of the corps, disputed some of the inspector general's findings in a letter appended to the report. Things like "waiting for concrete to cure" could still be taking place during what seem to be periods of inactivity, General McCoy wrote, so a quiet period "does not mean that the project is not moving forward."
But many of the delays came during 2004 and took place in response to political developments in Iraq, the inspector general's report says. The American occupation government, called the Coalition Provisional Authority, mobilized many of the companies early that year.
After the authority went out of existence in June 2004, handing sovereignty to an Iraqi government, top American officials then kept the companies idle for months as they rejiggered the rebuilding plan and ran up costs as little work was done.
NYT
Damn! Neurotica and HUBBY are tacking it all, not leaving any for the rest.
Can't blame them, getting while the getting good. Blame the do nothing congress that did not bother to look into the facts 3 years into this fight. They had the responsibility to hold the contractors responsible for the money they took and for the work they promised to complete. But unfortunately for the American and Iraqi people Congress was AWOL.
posted by madtom at 8:33 PM
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