Report Details Iraq Contract Failures

By Walter Pincus
Washington Post Staff Writer
Wednesday, January 14, 2009

A $722 million contract to rebuild Iraq's oil and gas production facilities was marked by multiple changes, cost overruns, failure to meet schedules and lack of oversight, according to a new inspector general's report.

The contract ran from 2004 to 2008 and, like many signed in the early years of the Iraq war, it had a general goal: to rebuild the oil infrastructure in southern Iraq, using U.S. funds ($562 million) and money generated by sale of Iraqi oil ($160 million). The U.S. Army Corps of Engineers and the Joint Contracting Command in Iraq managed the contract, which KBR won. When the contract went into effect, KBR was a subsidiary of Halliburton. KBR officially separated from Halliburton in April 2007 and is now an independent company.

The contract managers assigned about 30 specific task orders for KBR to carry out, Stuart W. Bowen Jr., the special inspector general for Iraq, found. His report, released yesterday, found that the task orders "took longer than planned; were frequently modified, scaled back, and/or terminated; and increased in cost over time." The report also found that the Iraqi government "may not be properly maintaining the rebuilt facilities and equipment that cost hundreds of millions of dollars" and "does not appear to be committed to completing and using some projects."

One contract, to restore a plant to make liquefied natural gas and liquefied petroleum gas at Umm Qasr, was funded with $147 million in U.S. and Iraqi money, but it was terminated before rotors for a turbine gas compressor were installed. The report found that the task order had been modified 35 times, and costs increased by $10 million. Bowen said the rotors are stored in a warehouse and have not yet been installed. As a result, the report said, "Gas production at the plant is below goal and a portion of the U.S. investment is being wasted."

Sen. Susan Collins (R-Maine) said yesterday, "The report cites a familiar and troubling litany of poor planning, insufficient security and the failure of the Iraqi government to protect and maintain facilities." Collins and some of her colleagues authored a law last year that prohibited the use of more U.S. money for major Iraq reconstruction projects.

The report disclosed several instances in which KBR either failed to provide adequate cost information or supplied questionable cost reports. Bowen also took the Corps of Engineers and the Joint Contracting Command to task for changing the prime contract officer, who supervised the work, 13 times over three years.

The KBR contract was based on costs plus a fixed fee and carried cash rewards based on performance. Although KBR did well in the areas of health and safety measures as well as property management, it was penalized in areas such as cost-overrun forecasts and project schedules. As a result, an evaluation board awarded the company $6.5 million out of a potential $25 million.

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