Contrack International Inc., an Arlington engineering and construction company, became the first major U.S. firm to withdraw from a reconstruction contract in Iraq because the deteriorating security environment had made working there too costly.
The company led a team assigned to rebuild the country's transportation system, including construction of new roads and bridges. The contract, awarded in January, could have been worth as much as $325 million to Contrack and its subcontractors.
Contrack said in a news release that it ended the contract because "the original scope of work that was envisioned could not be executed in a cost effective manner under the present circumstances." News of Contrack's withdrawal was reported in yesterday's editions of the Los Angeles Times.
The company said it is still doing some work in Iraq and is pursuing other opportunities in the country. Contrack executives did not respond to telephone messages and e-mails seeking comment.
Lt. Col. Eric Schnaible, a public affairs officer with the Iraq Project and Contracting Office, said that the decision to end the contract was mutual and amenable and that the government was satisfied with the work Contrack had done.
"I think when people bid on a contract, they do it with the understanding that it would be a permissible security environment," Schnaible said.
Contractors are responsible for providing their own security forces, which can be expensive, he added. "The security costs have to be taken out of somewhere. . . . There's also a profit margin to consider. They're a business."
The transportation systems contract will not be put up for new bids. Instead, the Iraq Project and Contracting Office will assume responsibility for managing the work of about 18 subcontractors that had already begun projects under the deal. Those subcontractors are a mix of U.S. and Iraqi companies, Schnaible said.
Contrack is the first major contractor to pull out, Schnaible added. He was not aware of any others that were considering following suit, but acknowledged that threats from insurgents have posed enormous challenges to the reconstruction effort.
Several private contractors have been kidnapped in Iraq, and dozens more have been injured and killed in attacks there. Four employees of Halliburton Co. subsidiary Kellogg Brown & Root were among 22 people killed in Tuesday's attack at a U.S. base in Mosul, the company said yesterday. Halliburton and its subsidiaries have lost 59 workers and subcontractors in Iraq and Kuwait.
The type of work Contrack was doing was particularly difficult, Schnaible said, because it was not contained in a designated area that could be easily protected.
"The security environment is such that the insurgents threaten the workforce. They are pretty good at leaving death threats on the homes of workers' doors . . . and being pretty brazen," Schnaible said.
Stan Z. Soloway, president of the Professional Services Council, an organization that represents government contractors, said he has heard of similar situations, though none as dramatic as the one faced by Contrack. The decision to end this contract was a reasonable one, Soloway said, but is not likely to spark a trend.
"They couldn't deliver to the customer, they were concerned for their people and it wasn't doing any good for the company from a business sense. That's really three strikes and you're out," Soloway said.