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Contract Quagmire
in Iraq
by David
Phinney
April 27th, 2005
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Rioting and threats of work
stoppages at critical transportation hubs needed to rebuild
the war-torn Iraq have erupted in recent months following
payment
disputes between contractors originally hired by the
U.S.-led Coalition Provisional Authority and Iraqi officials
skeptical of the billings and the CPA's handiwork.
The contractors include the world's largest shipping company
managing Iraq's second largest port, a security contractor
responsible for protecting Baghdad International Airport and
a major Pentagon supplier hired to install new air traffic
control equipment.
All have clashed with the Iraqi government, which has
refused to pay the companies.
Backing up the contractors' demands for payment, the U.S.
State Department says the billing disputes stem from the
transition of control from the CPA, which ran the country
for 15 months, to the Iraqis. There is no cause for alarm,
say the US officials: "patient firms have been
rewarded."
Critics, including one Iraqi official who supervises the
contractors, say the disputes are widespread and much more
serious: many contracts were signed by CPA bureaucrats
without proper paperwork or procedures. In addition many
companies
have overcharged for work done or failed to deliver on their
promises.
Fast and Loose Contracting
The CPA originally hired these contractors after the 2003
invasion with plans to
pay for the work with Iraqi funds collected from frozen
international bank accounts and income from oil sales. But
when the U.S. occupation authority disbanded last June, the
work continued while the contracts were handed off to the
Iraqi interim government led by Ayad Allawi.
Scrappy fights over the contracts may well be the legacy of
the CPA's fast-and-loose business practices. Auditors
working for the United Nation's Iraq Advisory and Monitoring
Board (IAMB) as well as the CPA's own Inspector General have
since blasted the occupation authorities for sloppy handling
and faulty accounting of the more than $9 billion in seized
assets known as the Development Fund for Iraq.
Now the new Iraqi government is arriving at similar
conclusions, claiming that the CPA inappropriately awarded,
executed and poorly documented the money it agreed to pay
contractors.
"It's a problem all ministries are dealing with because
of the lack of paperwork provided by the U.S.-led
administration on contracts they signed before handing over
power in June," Iraq's deputy transport minister, Atta
Nabil Hussein Auni Atta, told Bloomberg News in March.
The U.S. embassy in Baghdad acknowledged in early April that
Iraq is specifically withholding payments from four
companies -- A.P. Moeller-Maersk, Global Risk Strategies,
Raytheon and Olive Security -- but sources at the Pentagon
and former CPA officials believe that there are many more
contractors engaged in similar quarrels over payment.
"There's a lot of them," one former CPA official
told CorpWatch.
Meanwhile, the U.S. embassy in Baghdad is going to bat for
the four contractors
-- and others -- by pressuring that Iraq pay up without
publicly faulting the CPA's previous handling of the
contracts.
"It is not unexpected that there would be payment
delays and occasional disagreements about who in the Iraqi
government is responsible for, and has the
funds to pay, particular contracts, many of which predate
Iraqi sovereignty. The
fact is that patient firms have been rewarded in Iraq;
contract obligations are
honored." said an April 5 statement e-mailed to
CorpWatch from embassy
spokeswoman Theresa Rachael Shope in Baghdad.
"The United States Embassy has been coordinating
closely with other coalition
partners, the involved Iraqi ministries, and the companies
themselves to amicably resolve contract payments that are in
arrears," the statement continued.
Shope declined to identify the nature of the contracts or
their value, maintaining that "all discussions which
the Embassy has with U.S. corporations and foreign
governments on such matters are conducted in strict
confidence."
Riot over Port Management
A.P. Moeller-Maersk, a Danish shipping company, has been
challenged both by the
Iraqi government over contracts as well as by the local
people. After Iraqis began rioting over its management
contract for Iraq's second largest port, Khor Az Zubayr on
the Persian Gulf, the company immediately shut down its
operations and abandoned much of its equipment on March 1.
As one of the Pentagon's largest international contractors,
the company assisted in the invasion by operating cargo
ships carrying ammunition and tanks for occupation forces
during the invasion, and was then awarded the port contract
in July 2003 by the CPA to manage what has become an
important and secure shipping center for food, consumer
goods and oil exports. The contract was awarded without
inviting competing bids, a practice that is usually expected
in government contracting.
Details of the original contract are sketchy, but A.P.
Moeller is said to have originally planned on managing the
port for five years, which would have positioned the company
for an even longer-term 10- to 15-year contract. In return,
the company collected 93 percent of all revenue from port
fees and a $15,000 daily management fee, according to
sources familiar with the contract.
"It was like a Danish colony," one former CPA
transportation official said glibly.
Although the contract was adjusted several times, Iraq's
transportation ministry began complaining some months ago
about the process of the awarding of the original contract
as well as A.P. Moeller's documentation on the estimated 60
ships now entering the port each month.
The March 1 riot outside the port put a sudden end to the
agreement, with A.P.
Moeller citing safety concerns for its workers. The company
continues bickering
over money it believes it is owed.
"We received payment, but not all," said Hans
Peter Clipman, managing director of A.P. Moeller in Kuwait
City, who said that all management of the port was
independently audited and that the company employed hundreds
of Iraqis.
Several former CPA officials familiar with the contract
offered varying views on the port deal. "The original
contract was awarded in the middle of the night without
competition by a couple of Army majors and the company was a
little too greedy," said one. "It's proper that
the Iraqis are now reconsidering such contracts."
Another said that the riot at the port was waged by a
"rent-a-crowd" so that local Iraqi officials could
take over the port operation as soon as possible.
"Those protestors were never heard of before or
since," he claimed.
Work Stoppage at Iraq's Largest Airport
The U.S. embassy in Baghdad claims to have made progress in
resolving at least
one of the disputed contracts - held by Global Risk
Strategies, which provides
security services at Baghdad International Airport (BIAP),
Iraq's main air terminal and a key lifeline for occupation
forces and international support. The British-based firm
recently received back payments for November and December
2004 billings totaling as much as $17 million, as a result
of embassy intervention with the government.
Established in 1998 with two employees, Global Risk
witnessed rapid growth after
the war in Afghanistan and grew to over 1,500 workers by
2004 with work in Iraq
where it employs a large number of Fijian and Nepalese
Gurkhas for armed security at a reported $1,000 a month.
Since the occupation of Iraq, the company has held contracts
to protect CPA operations and guard Iraq's currency exchange
program. Then in July 2004, it took over security tasks at
the airport after another contractor, Virginia-based Custer
Battles, was relieved following allegations of fraud,
multi-million-dollar billing problems and staffing
shortages.
Global Risk spokesman Giles Morgan declined to comment on
the present problems
with the airport contract, but tacitly admitted there have
been problems in getting paid.
"In the course of our work on key projects relating to
the operation of Iraq's
infrastructure, we have on occasion been grateful to the
United States Embassy"
for securing payment from the Iraqi Government, Morgan said.
Ron Chavez, a Halliburton
security coordinator at the airport working on an Army
logistic services contract sheds a different light on the
gravity of Global Risk's grievance with the Iraqis.
"I have been working very hard to secure this airport
and it is a dangerous place," Chavez says in a December
27 e-mail to his father. "The company that runs the
security is undermanned and when you have people in your
perimeter it's almost impossible to secure."
"I feel it's not if a bomb will hit, but when. I'm
trying to persuade people we need to move the operation to
our own facility. [But] I'm meeting political resistance. I
just want to save lives. Cost is a terrible weapon."
Saying that employees of Global Risk Security threatened to
walk off the job if they were not immediately paid, Chavez
adds: "The Army was not ready to take over their
positions, so they finally settled on a handshake
deal."
Giles Morgan says Global Risk has seen passenger traffic
rise by over 50 percent
to over 14,000 passengers per week since the company took
over the prime contract for security last July. In response
to Chavez' claim, he says, "At no stage since Global
took responsibility for security management of BIAP, in July
2004, have security levels been compromised through
under-manning."
Air Traffic Control
Iraqis are also bristling over charges on another airport
contract held by Raytheon of Waltham, Massachusetts, one of
the Pentagon's largest missile providers. The company also
previously provided the CPA's communications systems.
Hired by the CPA to install state-of-art air traffic control
equipment touted by the company as the "infrastructure
needed in order for Iraq to rejoin the international air
traffic community," the project soon flew over budget
by millions of dollars, according to one anonymous source
acquainted with the contract.
When the Iraqi government put the brakes on payment, the
company walked off the
job and didn't return to work until Raytheon received part
of what it was owed.
Marcos Costilla, an advisor in Baghdad from the U.S. Federal
Aviation Administration, says that the project was
originally estimated to cost $27 million, but has now
reached $33 million because of increased expenses for
security, staff and the installation of flooring. Costilla
believes the payment problems stem from Iraq's new banking
system.
"They are two invoices on the table right now being
discussed," Costilla claims. "They are not
disputes, other than the invoicing."
Raytheon declined comment.
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